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Business Budget Basics: 5 Things you MUST be Doing to Ensure Success

Whether you are a startup or a seasoned company, small businesses rely on cash flow to stay in operation. Budgeting is the primary weapon a business owner has to control cash flow and predict possible shortfalls. If you want long-term success, you must maintain a budget and adjust your operations when budget tracking indicates the need to do so.

A budget that both estimates and matches expenses and revenues helps a small business forecast its cash position in the short and medium term. You need a cash forecast to ensure you can operate as planned, expand the business if the opportunity exists and verify that you can generate enough earnings to pay yourself a viable income.

What to Do

Don’t worry too much about how to do a budget. You can use an online spreadsheet, such as the IOU Financial Business Budget Smart Sheet, to make all the entries and generate reports. It’s more important to concentrate on what you must do to get the most from your budget. Here are five tips that you’ll find useful.

Check out industry standards: Every industry has its own characteristics regarding how much of your revenue you’ll have to allocate to various cost groupings. Retailing is quite different from refining, and you need to know the right numbers to use when constructing your budget. You can glean this kind of information from several sources, including the IRS website, the library, and other local business owners. You don’t have to be too precise, because small businesses tend to be volatile – what’s important here is to understand the industry averages.

Leave some slack: It’s great to budget, but it can be self-defeating if you aim for precision down to the nickel. Predictions are often unreliable and the future is uncertain. Bearing this in mind, it’s better to underestimate revenues and revenue growth relative to expenses when projecting the next three to 12 months. Better to have some extra cash on hand then to be caught short unexpectedly.

Sharpen your pencil: That’s old bookkeeper lingo for finding ways to cut costs. To do so, you’ll need to identify budgeted expenses that you can control. Fixed expenses like rent and insurance usually can’t be changed in the short run, but other items can, including non-critical maintenance, adjustments to labor usage, discretionary purchases and so forth. Remember to take advantage of your suppliers’ payment terms. In some cases, you might be able to reduce retirement plan contributions for the current year.

Review your budget frequently: Big businesses often work on an annual budget cycle. That makes sense, since their size requires a complex and time-consuming budget process. You, on the other hand, need to review your budget at least every month. A small business doesn’t have the kind of resources that the big ones use to smooth out surprises in the company’s cash flows. The more volatile your environment, the more frequently you will need to review and update your budget.

Comparison shop: It’s your responsibility to conserve your cash, and one of the best strategies is to shop around for new suppliers and service providers. There is never a bad time to do this, but the start of a new budget cycle is a natural point to comparison shop. It’s also important to do this when you are planning a change in operations.

In sum, budgeting is an essential part of running a business. A cash crunch can kill a small business, so stay ahead of the curve by tracking your budget closely and revising estimates as you gather new information. Finally, establish a relationship with a lender so that you can borrow money when you need it, whether budgeted or not.

DIY or Hire an Accountant?

Many owners of small business do their own accounting, usually with the help of a software package such as QuickBooks. This can make sense if you run a one- or few-person operation, are familiar with basic accounting, and have the time and inclination to take on the work yourself. For you DIYers out there, we recommend our IOU Financial Business Budget Smart Sheet to establish and track your budget.

For some, the question of hiring an accountant is confusing. Here are nine signs that indicate you should go ahead and hire one: 

  1. Knowledge: If you aren’t familiar with accounting terms, financial statements or report creation, you might need an accountant, at least in the beginning, to teach you what you need to know. If you don’t think you have the time to study the subject, you can keep the accountant on as long as needed.
  2. Taxes: Tax law is complicated, and one of the worst mistakes a business can make is to overpay its taxes. But even worse is to underpay and get caught, because then you’ll be hit by penalties and interest. Use an accountant if you don’t understand which deductions and tax credits to take, and/or if you don’t want to file your tax return on your own.
  3. Time: Let’s face it, bookkeeping can eat up your time and divert you from more important tasks. You need to operate the business, make staff decisions, market your offerings and troubleshoot problems. It shouldn’t be surprising that bookkeeping would be low on your priority list. You can hire a bookkeeper who knows how to do other accounting tasks – they usually charge less than full-blown accountants.
  4. Growth: Congratulations, your business is experiencing rapid growth. However, that also means you have more customers to attend to, more staff to hire, more vendors to negotiate with, and so forth. These activities require more paper pushing, number crunching and meeting time. With these management challenges, why not let an accountant lift some work off your shoulders?
  5. Profit margin: It’s nice when revenues grow, but less nice if profits don’t follow. The reason is invariably that your costs are too high. You could use an accountant with a sharp pencil to evaluate your overhead costs and suggest ways to save money. The savings could easily pay the accountant’s salary and hopefully a lot more.
  6. Investors: Have you grown to the point that you have investors? Well, they’re going to want to see professional reports that lay out the current financial condition of the business. Professional financial reports are also useful in recruiting new investors. An accountant can produce the reports you need and make them look professional – that will help keep investors happy.
  7. Expansion: If you are thinking about expanding into a new state, an accountant will help you meet the regional reporting requirements for payroll tax, income and sales. Expansion to a new state may include opening new locations, creating new distribution logistics and hiring new staff. An accountant can help you track the costs of these moves.
  8. Merger/acquisition: If you are looking to buy or sell your business, you’ll need an accountant to evaluate the entities involved and how to structure the transaction in order to minimize taxes.
  9. Audit: If the IRS has signaled that it wants to audit you, a CPA or other qualified accountant will be able to represent you to the IRS. This can help prevent you from making mistakes as well as lower your stress level. Generally, you don’t want to face the IRS on your own.

Increase Sales in 2017 with a Solid Marketing Plan

Every business owner hopes that the upcoming year will be more successful than the last; but instead of just  hoping, entrepreneurs can create plans to ensure those goals are met. New product launches, expansion and franchising are common way to increase sales, but they are risky and costly. However, implementing a new or improved marketing strategy can benefit a business at a lower cost, or can be budgeted for easily.

What are the Benefits of Marketing?

Blue Cow Creative lists several benefits of marketing, including promoting brand recognition, advertising your services or products to customers, selecting which clients to target, and allowing you to communicate with those individuals in a timely manner.

The bottom line is that a business can offer the most innovative product, or the most cost-effective service, but without marketing the offerings to their intended audience, no sales will follow.

What are the Most Effective Forms of Marketing?

There are a multitude of marketing strategies; there is the traditional, interruption marketing, which interrupts an individual’s day with a cold call, or a television program they are watching with a commercial. Another alternative is permission marketing, which only targets the individuals who give their consent to be contacted.

Research has proven time and time again that permission marketing is not only more cost-effective, as you are not spending funds to contact individuals who have no interest in your business, but is also more effective. It is much easier to close a sale with a person interested in what you have to say, than one who has to be persuaded. Below we list three different types of permission marketing:

Email Promotions 

Emails allow you to communicate with a targeted audience in order to announce new products, sales, special deals and events. There are several ways to ask customers and potential clients to sign up for your email promotions. If you have a physical store or office, you can ask visitors to add their contact information to your list. If you have a website, you can create pop-up advertisements asking people to opt-in to receiving email communication from you. To entice them to sign up, consider offering an exclusive discount or a an entry into a drawing.

Social Media

Social media is an effective marketing tool for any business. It is a form of permission marketing because people have to choose to follow or “like” your business page, and if they always have the option to stop receiving communication by deleting access to their profile.

There are a plethora of social media platforms to choose from; Facebook is the most popular one, allowing access to 1.79 billion monthly active users, but Instagram, Twitter and Pinterest are also beneficial to use to connect to your target audience.

Be strategic about what you post on social media; remember to be honest and ethical, yet make your posts and images eye-catching and creative in order to get noticed. The biggest advantage of social media is that other members can share your posts with their network, providing a form of free advertising.

Influencers

Influencers are individuals that can sway the purchasing decisions of others because of their expertise, authority, or knowledge in a certain area. There are fashion influencers, who curate outfits for their audience, beauty influencers who recommend makeup brands for specific skin needs, etc.

When considering ways to market your brand in 2017, research relevant influencers in your industry. You can contact these individuals through their personal blogs or social media platforms to ask them to recommend your product or service. The best part is that these people already have large fan bases, so your offering would be shared with a multitude of potential customers who want to hear what the influencer has to say. Keep in mind that as payment for their promotion, influencers may request payment in the form of free items or actual monetary compensation.

With the new year quickly approaching, set your marketing budget now so that you can pursue relevant strategies for permission marketing. Get your budget in order before the new year with our Business Budget Smart Sheet.

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The Benefits of Good Budgeting for Your Business

If you’ve been managing your budget on the back of an envelope, you are denying yourself a powerful tool that can make the difference between your small business’ success or failure. A proper expense budget not only serves as a roadmap for how you will be disbursing funds, but it also functions as a reality check by tracking your actual cash outflows against your projections. Good budgeting lets you objectively gauge whether your business strategy is working and highlights areas that need improvement.

Budgeting and Tracking Expenses

For the typical small merchandiser or manufacturer, the first step in creating a proper expense budget is to tease apart the costs of goods sold from your other operating expenses:

  • Costs of Goods Sold (COGS): These are the costs that are directly related to the items you sell. They include the payroll costs of direct labor, purchases of raw goods and/or inventory, purchases of directly related non-inventory items (like lubricants and packing materials), outside services used to help produce or sell your product, as well as other direct costs. Most of these costs are fixed, but the inventory purchases will obviously vary from month to month.
  • Operating Expenses: All the expenses that didn’t go into COGs are budgeted and tracked as operating expenses. These include the payroll for administrative and support staff, non-inventory materials not directly related to the production of goods (such as office supplies), outside administrative services, rent, utilities, travel & entertainment, and loan Everything except utilities can be considered a fixed cost.

The difference between your sales revenue and COGS is your gross income, whereas you have to subtract your operating expenses and taxes to figure your net profit.

Benefits of Tracking Expenses

Here are four good reasons to adopt proper budget tracking:

  1. Streamline areas of overspending: By tracking your actual expenses, you know immediately whether you are busting your budget with overspending, and if so, by how much. You then have two options. The first is to revamp your operations so as to streamline your overspending. This might mean changes to the sources and amounts of inventory and non-inventory items you purchase each month, as well as the size of your payroll, your use of outside services, and the amount you spend on travel & entertainment. The second option is to increase your budget for items that can’t be streamlined. Most businesses use both of these strategies to keep spending in check.
  2. See how your cash flow is affected with fixed vs. variable costs: You have immediate control over your variable costs, but fixed costs take time to change. If you see a lot of cash flying out the door due to high fixed costs, you can start planning ways to lower those costs. For example, you might want to find ways to cut your rent or your payroll. When too much money is being spent on variable costs, you can take steps to cut costs right away.
  3. Analyze spending patterns over time: Budget tracking helps you recognize trends. For example, inflation may increase the cost of your raw materials in a steady, predictable way. If that’s the case, you can incorporate this information into your budget going forward. Budgets also help you recognize seasonal spending patterns, which are extremely important in planning how much cash you’ll need on hand for the upcoming period.
  4. Realize areas of new opportunity for investing time and money: You might find that buying inventory in larger batches lowers your price per unit, but that you’ll need to enlarge your storage facilities to take advantage of this cost break. A budget will help you discover and plan for this and many other opportunities to lower your costs and/or increase your revenues. It can also show you when it makes sense to borrow money to finance your business’ growth.

Convinced? IOU Financial is making it easier to create and track your expenses by offering our free Business Budget Smart Sheet. Simply fill out the short form to download the planner, which is extremely adaptable and easy to use. Don’t delay, because the sooner you organize your budget, the sooner your business will reap the many benefits of tracking your spending!

Tips for Getting the Most from Your Small Business Marketing Budget

Getting the Most from Your Small Business Marketing Budget

Small and medium-size businesses don’t have the luxury of million-dollar marketing budgets that large corporations do. We know you’ve seen plenty “marketing on a budget” articles around the internet, so we wanted to take a slightly more strategic approach, providing some perspectives on “intelligently investing in your marketing.” You can find various strategies to spend a minimal amount to market your products or services, but will that generate maximum exposure? In this article, we cover three major areas for you to consider spending some of your small business marketing budget and strategies to help ensure your investments pay off.

 

Scale Operations With Marketing Technology

While finding free marketing platforms might seem like a cost-effective tactic at first, using paid marketing technology can provide greater efficiency, create less frustration, generate better data for reporting, and overall, provide better results when it comes to getting the word out about your small business. Platforms to consider are:

  • Marketing Automation – This is usually a marketing platform that consolidates all of your marketing efforts. Instead of having dozens of accounts for blogging, SEO, social media, emails, landing pages, etc. You can access and control all of them from one place. This allows you to evaluate and compare the performance of marketing campaigns, check the effectiveness of call-to-actions across different platforms, and automate multiple channels with the click of one button. Where to start?  HubSpot or Marketo.
  • Keyword Management – If you are doing any online advertising, understanding your keyword strategy is crucial to making the most of your advertising budget. While you can use Google’s Keyword Planner to check your keyword rankings, a platform like Wordstream will analyze your current keywords and makes improvement recommendations. This platform helps both newbies and professional marketers start and manage their AdWords accounts, promising to convert 60% more leads, while lowering marketing costs by 10%.
  • Social Media Management –  With the ability to manage all accounts from one dashboard, schedule future posts, engage with clients, and analyze social media campaigns, these tools can save you valuable time to spend on other things. The extra analytics and reporting provided can also help you make informed decisions about your social media marketing. Hootsuite is a great platform to consider for this service. Over 10 million subscribers are using this solution to integrate all of their social media accounts into one.

 

Invest in Social Media

While posting content on social media is always free, investing in these platforms can offer a bigger pay-off through increased exposure to your target market. Consider spending marketing money in the following areas to maximize your brand’s exposure on social media:

  • Social Media Advertising – Facebook, the biggest player in social media, has over 1.4 billion users worldwide; you can pay to create customized ads to target your specific audience by defining specific demographics such as the user’s age, location, interests, etc. The best part is that you can indicate what your maximum budget is, and Facebook will stop the campaign once you hit that number. Additionally, users can find directions to your business, a link to download your app, and even shop right from the Facebook ad.
  • Paying for Content and Photos – One of the best ways to generate traffic to your business’ website is by creating unique and informative content. However, not all small business owners are professional writers, which is why it can pay big dividends to hire an expert to create articles, infographics, and website content. Additionally, platforms like Pinterest and Instagram rely almost exclusively on images, so great photos can have a big influence over how many people choose to click on your link or not.
  • Hiring a PR Consultant – Hiring a professional PR consultant can really help your brand get the exposure it needs. A PR firm can develop a clever marketing campaign, find writers for you, and offer helpful advice on what cost-effective channels to reach your particular audience, helping you save money by avoiding spending it in ineffective areas. In many cases, PR professionals can help connect your organization with influential people (writers, magazine editors, bloggers, etc.) that can provide access to their own audience.

 

Spend Smarter on Traditional Advertising

Although there are many innovative ad strategies, that’s no reason to completely ditch traditional advertising! Of course, you’ll want to use it in a smarter way. While new businesses may still be discovering who their client base will consist of, those that have been operating for a few years have a better idea. Small to medium-size business owners that are interested in maximizing their return on any tactic, use tracking methods to measure their performance. When it comes to TV and radio, planning ahead to correlate sales with ad campaigns is important.

While a television commercial can be expensive, investing in a TV ad in a specific market where you know it will reach your target audience can greatly increase your sales. As well, paying for radio commercials during specific times of the year (Christmas, back to school, etc.) when your sales typically spike on stations that target a specific audience (parents, younger women, etc.) can be lucrative.

 

The success of any business is greatly affected by its marketing strategy. Looking for ways to fund that big marketing idea? Contact IOU Financial and put a small business loan to work. Our quick application and pre-approval process can fund a business loan up to $150,000 within a matter of days.

 

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