International Payment Processing - An Overview

Payment processing involves the exchange of payment, billing and transaction information between a customer, the payment gateway and the merchant. Payment processing may be local or international depending on the kind of business you have. Some International Payment Processing methods include:

1. International cards
2. Pay pal
3. E-wallets
4. Cash methods
5. Pre-paid methods
6. Check

Merchant Benefits with International Payment Processing
With international payment processing merchants became capable of:

• Global acceptance
• Real-time confirmation of payment
• Processing speed is fast
• Internally accepted method
• Customer security
• Easy to use
• Can gain popularity
• Facilitate customers to shop without credit cards or bank accounts
• Excellent for small amounts
• No risk of any fraud or security

How Online Payment Processing Works?
It may be tough to grasp how online payment processing is carried out. Various steps and terms might make this process even more complex to understand.

Once a customer has chosen a desired product, he will fill out the payment form with personal and credit information and submit the form after which a variety of backend processes are initiated.

• The Payment Gateway
• Payment transfers to Merchant account
• Payment Receipt and report
• Data transfer to merchant’s database
• Receiving the payment

Payment Gateway and International Payment Processing
Payment gateway verifies the validity of the credit card. It manage the process of transaction, contacts to the bank, reports back the results and transfer the money to merchants account. A merchant account keeps the credit card payments. But merchants do not have the right to use these deposited payments until money is transferred to his bank from the merchant account. When the payment processing is completed successfully, then the customer receives a receipt and the report of transaction. All the payment data or record is then stored into the merchants database.

With Instabill merchant accounts you become capable of not just accepting credit cards online but it also allows you to offer various international payment processing options to your customers and provide safe online transactions.

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Intermediate Tips to Make Money With SEO

When it comes to some intermediate tips for crafting the best SEO plan, there are some tips and suggestions that you need to keep in mind. By keeping these tips and suggestions in mind, you really will be on the way towards developing the best SEO plan possible for your own website.

First of all, now that you have advanced from the initial, preliminary level of SEO development, as you move towards getting the best SEO, you will want to give serious consideration to investing in the services of an SEO expert. There are a number of very qualified professionals in business today that can aid you in coming with the best SEO.

Second, if engaging a professional is not on your horizon, you can learn a great deal about developing the best SEO plan on your own. By taking the time to research what is considered the best SEO, and by taking the time to educate yourself, you can be well on your own way towards developing what will prove to be a most effective SEO program for your own website.

Third, when it comes to developing the best SEO, you need to remain constantly abreast of trends and changes in cyberspace. You can not sit back and just assume your first stab at SEO will solve your problems over the long term. The best SEO plan is one that develops and advances over time. Your SEO plan needs to be adaptable and vibrant.

Only you can decide to do what is necessary to learn more about Search Engine Optimization and make it profitable.

Do you want to learn more about how I do it? Secrets of Article Marketing

Raymond Nesa is an experienced web marketer specializing in article marketing, traffic generation, and list building.

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Read My Article; No Raising Taxes!

May I ask why it is so hard to understand that American citizens don't want higher taxes? The American people do not need higher taxes, as many people are working pretty hard just to get by. If you raise taxes on the American people some people who have bought homes that they could barely get into will not be able to make the mortgage payments and they will be foreclosed on.

If you raise taxes people will not have the money they need to raise their children correctly. If you raise taxes businesses will not be able to expand and buy more equipment; therefore they will not be able to hire more workers to run that equipment and handle the expansion.

If you raise taxes those employees will never have a job in the first place to pay the taxes. If you raise taxes there will be fewer people paying into the system and more people trying to get money from the system. If you raise taxes you will set the American economy into a downward spiral and flat span for, which there will be no recovery.

If you raise taxes the United States will slowly slide backwards until we are passed by nations like China and India as the greatest economy's in the history of mankind. If you elect the Democrats they will raise your taxes. So I say to you, yes all you Democrat politicians who want to raise my taxes; Read My Articles; No Raising Taxes!

"Lance Winslow" - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/. Lance is a guest writer for Our Spokane Magazine in Spokane, Washington

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How to Use an Affiliate Marketing Program Website to Your Advantage

If you are looking to make money as an affiliate of a poker or gambling website you may be looking for some sort of guidance with how to go about doing that. There are many ways to go about increasing your profit as an affiliate, but you may not know all of the different ways all on your own. Because of this, there have been websites developed to help you understand and learn more, so that you can make more money. These examples of an affiliate marketing program website can help affiliates learn many things about how to make and expand upon the profits that they will be able to amass as a profit from being a gambling affiliate.

In an affiliate marketing program website one of the main things that would likely be covered is the use of banners. An affiliate marketing program website would probably stress this because banners are very important to directing traffic to the website promoted by the affiliate. There are many other programs that an affiliate marketing program website would stress, but the usage of banners is very important because they are so effective.

An affiliate marketing program website may be just what you need if you are looking for a way to market your affiliate status. If you are an affiliate, looking for a way to make your commission more lucrative, then this type of marketing website may be just what you are looking for in order to increase your commission. These websites work to make you money as an affiliate and help you learn better and more effective marketing skills as an affiliate.

Professional SEO. He helps a number of online gambling sites like:

Poker
Poker Affiliate Program
Poker Room

Article Source: http://EzineArticles.com/?expert=Anthony_LeMaire

Forex Signal, Forex Signals Advice

There are lot's of Forex signals providers out there. New Forex traders might be thinking of looking for a reliable Forex signals provider. Is there any reliable Forex signals providers available?

Personally, I will say do not pay for Forex signals. Think about it - if a Forex signals provider sells Forex signals for living, you can doubt their Forex trading skills? Or else if they are pretty good in Forex trading and making lot's of profit, I am wondering why do they still bother to sell Forex signals for money. Thus, what would be the value of such Forex signals providers? The answer is ZERO.

There are Forex traders who have been relying on Forex signals arguing those Forex signals providers really help them making money in Forex trading. These Forex traders can even show their Forex trading logs as evidence. After some though, I came out with the assumption that assuming I am the owner of a Forex signals provider, in order for my business to be in black, obviously I need some satisfying customers......

Full article available at: http://www.forex.labuan.net/forex-signal.html

Alvin Han is the editor of http://www.forex.labuan.net

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Using Momentum Stocks to Make Hundreds of Thousands of Dollars a Trade

What are momentum stocks? These are stocks that are from the fastest growing businesses and stocks on the market. These stocks rise rapidly and profits are dependent on exact timing. Day trading is often done using these types of stocks. They are not without risk, but the promises of substantial gains are a large factor in their popularity.

Using momentum stocks:

Swing trading: Swing trading will also make use of momentum stocks. The stocks will be held either for a number of days, or a few weeks. These stocks are traded on the principles of optimism, when they rise and pessimism, when they fall. This market is very volatile, and fortunes can be made and lost in just a matter of hours or days. It is important to be very savvy about the market trends and rising companies when you indulge in this form of stock trading.

Day trading: As the name implies this is when stocks are traded within the business trading day. This is the highest risk trading with momentum stocks. It will rely on perfect timings to catch the best peak to sell stocks. Momentum stocks are used for this kind of trading. Again certain companies are studied as hot popular movers. As the momentum stocks go up and down, they are sold and bought to correspond with these patterns. Profits are made and lost based on timings.

Trading with momentum stocks is a very exciting way to make money but you need to know what you are doing or you can lose a lot of money. You will not be perfect every time in your timings so be prepared to lose a little as well as gain profits.

Get your Momentum Stock Trading System and sign up for my free weekly online trading system newsletter here at: http://www.crispstocks.com

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How to Start an Investment Club - Business Model

Your investment club will need to decide what type of entity you're going to adopt for business purposes. You'll have to decide whether you're going to be a corporation, a general partnership, or limited liability partnership. Each of these business models has their own advantages and disadvantages.

· Corporation. Most investment clubs will avoid becoming a corporation. This is because corporations are taxable business entities that require knowledgeable accounting skills to make them run smoothly and in accord with government regulations. A corporation generally means a lot of paperwork. This paperwork can be avoided by choosing another business model for your purpose of running an investment club.

· General partnership. This type of business model requires less paperwork and knowledge about taxes and other financial issues. Most investment clubs choose a general partnership as their choice of a business entity. A general partnership has nominal paperwork and costs associated with it because the taxes are passed to each partner's tax returns. This type of business model will let you accomplish what you need to do to run your investment club with the least amount of tax influence.

· Limited liability corporations. This type of a business model is much like the general partnership but it gives individual members of your investment group a bit more liability protection. Keep in mind that this type of business entity can be expensive and will need more paperwork.

Members of your investment group will have to decide which of the above business models works best for your club.

You will have to make a decision one way or the other since establishing a business entity is a requirement for tax purposes.

Chris Hickman owns a full info site about investment clubs. Check Out his site at http://www.ez-investment-clubs.com

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The Best MLM Network Marketing For You Requires Some Searching

Looking for the best MLM network marketing opportunity for you? There are many business opportunities out there. Look over the field before selecting one particular offering. Most of these type programs have a low up-front investment. The products they distribute are often everyday household products that everyone uses. Start with your family and friends and then venture out to make your business the best MLM network marketing company around.

The best MLM network marketing idea for you may be one of the big names in network marketing. Amway, Tupperware, and Mary Kay have all grown significantly from their beginnings. There are other smaller and less known companies that have superior products to go along with their opportunity. Invest in the MLM program that best suits your tastes and talents.

There are many reasons people search for the best MLM network marketing business. Some are looking for an income replacement when they have lost their job or have had an income reduction. Some people are so impressed with a product they have tried; they want to sell the product themselves. No matter what the reason is that they are searching for opportunity, MLM network marketing programs can provide the extra income needed for their household.

One that involves trusted friendships may be the best MLM network marketing plan for you. Most MLM programs that involve selling products draw people who have a large network of friends and associates before the business id ever launched. Since most MLM products are household related products, almost everyone is a potential customer.

Probably the best MLM network marketing program to get involved in is one that has been in business a number of years. Most of these programs have tried and true training programs and a sales support network to help novice business owners with their simple questions. Also, most have Internet sites that can instruct you 24 hours a day, 7 days a week.

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The State Of Paid-To-Surf Programs After The Stormpay Crackdown

What a difference a year can make. 12 months ago, auto surf programs were at their peak. More and more people were investing some serious cash hoping to multiply their money by as much as 12 times within a few months. At the center of this craze was Stormpay, the payment processor of choice by most of these paid-to-surf programs. Stormpay, you see, caters to a more global market. Whereas PayPal operates in selected territories, Stormpay has a wider reach. At that time, it was the best choice for auto surf companies, given the fact that Stormpay would open the doors for more people to join their programs.

And it worked.

The auto surf industry became a bustling field, where the companies as well as the investors enjoyed unbridled success. Investors were able to recoup the money they have expended, with profits soaring to fantastic rates in such short periods of time. And the companies were able to amass enough capital to finance their operations.

But that was then.

2006 welcomed the paid-to-surf industry with the grimmest news. Stormpay froze the accounts of auto-surf programs, and up to this writing, a lot of investors have yet to receive the money that have accrued to them. For those who managed to receive their pay in their accounts, they cannot withdraw the same as such amounts are traceable to the auto surf companies.

Why did things come to this?

There are two sides to the story. Stormpay claims that some of these paid-to-surf companies are using the pyramid model, which is generally outlawed since such companies do not have real assets. The auto surf companies are claiming that Stormpay is merely using the alleged irregularities as a smokescreen when the truth of the matter, according to them, is that Stormpay doesn’t have enough funds to cover the withdrawals from the auto surf companies’ investors.

If you would conduct your own research on the matter, you’re bound to get more spins to these tales. Which is true? We’ll never know until formal investigations conclude and a judicial decision is reached.

Hardest hit in this controversy is 12dailypro.com. We could even say that 12dailypro.com is the epoch of the issue, as they are the ones who were targeted by Stormpay’s sudden crackdown.

But here’s the deal: why penalize the innocent investors? If Stormpay wanted to cut its ties with the entities it perceives as unlawful, why bring down the investors as well, when such investors under such reasoning would be considered as “victims” rather than “accomplices?”

Again, the matter needs to be resolved before we could derive some conclusive answers.

Nonetheless, a lot are wondering what the state of the paid-to-surf industry is today, after the Stormpay crackdown.

For starters, more people are warier about auto surf programs. They are now afraid to invest their money, since, as Stormpay has demonstrated, their funds could be frozen at any time, without notice at that.

But the crackdown on some paid-for-surf programs have opened the doors for new players, as well as established ones that weren’t affected by the controversy. Investors who have tasted the potentials of an opportunity like this have quickly jumped to other programs offering the same system but without the frightful possibility of getting killed. You may have received unsolicited emails advertising emergent paid-surf programs. Though spam mails like this are quite irritating, they may point out to a resurgent industry.

The question in everyone’s mind is this: is the auto surf industry dead?

No, it is not. It suffered a setback, from which many lessons can be learned. But it has, almost instantaneously, made a comeback. The current players are a mixture of old and new parties, but the concept remains the same, albeit with more caution against possible attacks. This caution is now borne by both the companies as well as the investors.

The Stormpay-12dailypro incident may not be pretty. But it did leave us with something that will prove beneficial in the long run: the moral of a tale that would make the industry sturdier.

Mark Flavin is an online marketing expert. Mark specialises in website traffic generation, affiliate program promotion & email marketing. You can find out his secrets for free at http://www.markflavin.com

Mark recommends The Business Professional for increasing your profits online - http://www.markflavin.com/business.html

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HYIP: No Longer Scam During December, HYIP Change Tactic Now

HYIP scam in December! Do not invest! December is a bad month for HYIP investing! HYIP scam for Christmas money!

I believe many must have heard of the above many times. For the past few years, December was the worst period to invest in HYIP. But in 2005, that trend seems to have ended. The worst month was in fact November! The statistic is based on the number of hyip that closes in November. (the statistic discounts 'baby' hyip)

HYIP scammers are now changing their tactics. They are closing shop early in November now. They believe that the take-in rate for new investors in December will be very low. This is bad for them as their ponzi system will be affected if there is no consistent inflow of new funds.

Best HYIP investment program

As a rule of thumb, most HYIP investors avoid investing during November, December and Janaury. Most HYIP investors will start investing in Feb. So what do you do during these 3 dangerous month?

There are a lot of opportunities occuring during these period. But do not expect any long term investing. Think short term during these period. A lot of short term HYIP will appear during these period. Invest with more care.

Best HYIP investment program - A reliable hyip monitoring site and it is the first site that combines hyip listing with a hyip blog.

Article Source: http://EzineArticles.com/?expert=Edwin_Tan

Forex Charts, Forex Trading Systems - No easy way to find Forex Charts and Forex Trading Signals

If you’re new to forex, you’re going to need forex charts. As you develop your forex trading system, use the demo accounts that many trade brokers provide. They’ll generally provide free forex charts as part of their demo forex trading system.

Search the Internet for “forex” or “forex charts.” The choices will be a bit overwhelming. You will have to do research to get a good match, both with the forex trading system and the forex charts themselves. You may have to mix and match to get your specialized needs met.

As you refine your skills, you’ll find you’re more discerning of the tools. And you’ll begin to notice more features on the forex charts. The forex trading signals may be quite standard on many sites, but how they integrate the forex trading signals with the forex charts may not function well with your style.

Search and you’ll find forex trading signals that fit closely with your requirements. Your forex trading system will become more and more refined with practice. And that’s the best way to learn forex – practice with a demo account.

Learning the forex charts and the forex trading system of different brokers will be frustrating to start. Work through it, it will be worth it. Don’t accept the first one you try. Or even the one your friend uses. Forex trading system and forex charts are very personal. And you’re going to be spending a lot of time together. Get comfortable.

The only way to pick a forex trading system and forex charts is to take recommendations and suggestions from articles, trainers and friends. But then make it your own. Find a perfect fit for your forex trading system.

Stephanie Mundle is the managing editor of http://www.MoneyMasteryForum.com an informational forum site for the average investor. Take a look. Information on forex, debt, money management, investing and business.

Come check out the forum at http://www.MoneyMasteryForum.com/forum.html.

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How Can You Achieve Success In Property Investment?

Every one wants to invest in property. If you are not aware “what is property investment” it is not possible that you can achieve success. If you are planning for property investment, first of all you will have to be aware about it. Secondly, where you should to invest? Thirdly, how much finance you should manage to invest? And one who can help to manage finance. And more questions come in mind when an investor plant to property investment.

This article will guide you in four steps “How can you achieve success in property investment”. In this article I will go through most important and base of investment for an investor that he must be aware from what is property investment.

“What is property investment” – When one or more investors buy units of company or property, he invest his funds. It increases economical transactions. Investment property may be commercial property, industrial property or personal property, like buying rental property as investment in Bulgaria or any where. You can invest your funds in emerging real estate markets for economic growth.

After investment, an investor looks to receive income on their investments every time from the occupying property. Return on investment depends on increase or decrease in the cost of operating the property. Capital growth may be reflected by increase or decrease in the property value held by investor.

Investor can achieve eternal secure investment if his property value may increase when he realizes to sale his property. Property investment in real estate or buying a rental property or investing in Bulgarian properties is long term investments. It will be more beneficial to achieve your target in future when you planning to sale your property.

I think now you will be aware about “property investment” after reading this article. My Next article will suggest you which field is best and where you should invest your funds.

This article makes investor aware about “Property Investment”. http://www.mhkinternational.com can help you to achieve your investment target. Get more articles about at http://www.kvcindia.com/blog.

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Online Paid Survey Programs Overview

It is estimated that there are more than 8 Million companies around the world,that actually pay for opinions related to their products. This reveals the fact that Online Paid Surveys form a huge industry with a great market potential. Paid Surveys Programs are a good opportunity for Homemakers, Moms, Students and persons looking for a good part time job.

Though there are many Paid Survey Programs available,most of them are not up to the mark. Some programs charge a one time fee,while some programs charge on a monthly basis. There are many Free Survey Programs also,but most of them have hidden charges. Generally I do not suggest 'free' ones because they do not update their databases regularly and often send a lot of unsolicited mails to you. Many Free Survey Programs are found to be hoaxes.

You may be wondering how these Paid Survey Programs work. Many companies are entirely based on surveys and feedback to know the quality of their product. The more they understand the consumers, the more successful they are. Sometimes many famous companies related to apparel and shoes even send sample products to you. They need your opinion on those products and in turn they will pay you for your opinions. Companies also pay you for your opinions on movie trailers, promos. Survey Programs contain many added benefits like Discount Coupons, rebates etc.

But, these days many hoax Paid Survey Programs are spread through out the Internet misusing the potential of the market. A good survey Program should always maintain a large database of various Paid Surveys. If you want to earn a substantial income online, then Paid Survey Programs will definitely help you. If you follow the simple guidelines illustrated in the Paid Survey Programs you can earn a decent money right from the first day.

Harris Krim is a Professional Internet Marketer. To know the Top Paid Survey Programs, based on his research, visit http://surveycheck.blogspot.com.

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Five Forex Trading Tips You MUST Know

Jumping into Forex trading with both feet? Here are five must-know tips on forex trading and mini forex to help you stay afloat in the Foreign Exchange currency market.

Know your forex trading market.
Educate yourself about the currencies that you trade. The more you know about the country whose currency you’re trading in the forex market, the more accurately you’ll be able to predict which way the money will move.

Pick a forex trading system – and stick with it.
Savvy forex traders will tell you that system is everything. Forex trading by system lets you automate your trades based on history, following the traditional peaks and valleys. Set up a system and live with it to make the most of your forex trading.

Practice makes perfect – but it’s not the real world.
Practice forex trading accounts are great for learning how a particular trading account works – but they’re not the real world. Many experienced traders recommend starting off with a mini forex account to minimize your losses while you get acclimated.

Keep your eye on the margin.
Margin trading is a great way to lose a lot of money quickly. Stay away from forex margin trading until you’re sure you know what you’re doing.

The only win that counts in forex trading is the bottom line. In forex trading, the bottom line is how much money you made at the end of the day. Don’t count won or lost trades – only dollars and cents.

Tony owns the http://www.live-forex-easy.com website. Please visit the site for more information about Swiss Forex Broker Marketiva.
Swiss Forex Broker Marketiva

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How to Earn Money Online with Paid Autosurf Programs

There are great earning opportunities online that people can venture into without really the need of investing a great amount of money. And an example of which is paid Autosurf programs wherein online companies pay people to visit their sites.

Why do online companies do this? What else but to get more traffic. You see in the web, companies compete just so they can be placed on the first page of major search engines. This way, whenever people would surf the net for certain services, their web site would be the first one to be visited. And one of the ways where they can achieve this is by having as many traffic as they can for their web sites.

Aside from traffic, online companies also invest in autosurf programs with the hope that the same people that they are paying to visit their site would eventually turn into paying customers.

How to Get Started with Paid AutoSurf Programs?

Companies that offer paid autosurf programs requires a membership fee. The membership fee varies but if you want to make more money then you need to pay a much higher membership fee. After you sign up and paid the required membership fee that is the only time when you can start autosurfing.

The best thing about autosurfing is that you are not required to spend the whole day surfing, a few minutes each day of netsurfing is enough. Depending on the terms you may get, you get paid either at the end of the month or every 15th day of the month. The terms will depend on the contract provided to you by the paid auto surf company.

As a word of advice, do not be too excited about registering to just any paid auto surf company that you find online, make sure that before you pay any membership fee try to investigate the validity of the company.

Hector Milla is editor of http://www.BigMoneyTeam.info a website pointing Ways to Make Easy Money Online, website associated with http://www.PaidSurveyEtc.info where you can get the most of paid surveys online.

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The Unique Flexibility of Debit Cards

Debit cards are becoming very popular. A debit card is often tied in with a major credit card so they can be used like a credit card, however, unlike a credit card a person can only spend the amount of money they actually have. A debit card is tied into a persons checking account.

Basically the idea of debit cards is to reduce the need to write checks. With everything quickly becoming paperless this fits right in. Debit cards are also the persons ATM card. They can use them just like any other debit card. Unlike a credit card, though, as long as they use it at their banks ATM they will not receive additional charges for a cash advance because they are actually taking their own money out of the bank.

Distinguishing between a credit card and debit card is done in a few different ways. First of all, while the credit card logo is on the debit card, there is also usually the banks logo and the word ‘debit’. However, a credit card and debit card do look familiar and usually only the person using the card knows it is a debit card not a credit card.

The main difference is the way the card works and where the money comes from. Debit cards can be used as either a debit card or credit card. Credit cards can only be used as a credit card. Debit cards do not carry a line of credit. The purchases made with a debit card can not exceed the amount of money a person has in their bank account. This is the main difference between a credit and debit card.

Another major difference between credit and debit cards is the risk involved. Because they are attached to a bank account, loosing a debit card is very risky. A person does not need a pin number to use a debit card and therefore can easily drain a persons bank account, causing extreme problems.

With a credit card the only problem is proving that someone else used the card. With a debit card the persons has to figure out how to get their money back and if any checks bounced they are responsible for those as well. The legal liability is much greater with a debit card than with a credit card.

The good thing about a debit card, though, is that it gives a person the freedom to use it anywhere credit cards are accepted. They liminate the hassle of having to write a check and show id. They are easy to use and accepted in a large variety of places.

Debit cards are convenient and easy to use verses checks or an ATM. They do have some risks, though. That makes it important for a person to use their debit card carefully and make sure they keep it in a safe place.

Morgan Hamilton offers expert advice and great tips regarding all aspects concerning Credit Card Interest Balance Transfers, including assistance with Discovercard.com. Get the information you are seeking now by visiting find-cards-now.com.

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Investment Property Mortgages - Are UK Rising Interest Rates Pushing Investors Out Of The Market?

Investment property mortgages are often referred to as buy to let mortgages. Investment property mortgages are used where an investor is purchasing an investment property with the intention of renting it out to tenants in return for a monthly rental income.

Many people are now involved in buying and selling investment property and as a result, the range of investment property buy to let mortgages has significantly grown. The investment property mortgages have become more widely available with some lenders offering buy to let mortgage products with up to 90% loan to value. If you can purchase investment property by using just 10% of your own capital this can result in the landlord being able to buy more investment property than before when the industry standard for buy to let mortgages was 15%.

Investment Property – Do your Research

With more sophisticated products available for investment property and the demand for rental property continuing, landlords are tirelessly looking for ideal investment property for sale. Finding investment property for sale can be a time consuming exercise but the most successful investors will constantly be on the look out for the best deals on discounted investment property. An established investor will always be researching areas identified as property hotspots where they can be the first to invest in an investment property. Investment property in regeneration areas can be equally as good but remember it can take time before these investment properties deliver a substantial return on your investment. Investment property in good areas, with strong rental demand will always be a winner if you are looking at good investment property potential.

Investment Property – Flat or House

Should you buy a flat or a house as an investment property? A question often asked but there is no right or wrong reason. Property investors buy investment property for different reasons. Some may buy investment property in their local areas whereas others may buy investment property further afield. A house as an investment property may present a wider choice of tenants. For example a house bought as an investment property could appeal to a single person, a small family, professional couple, elderly couple etc. A house is more likely to be freehold so avoiding annual service charges. A flat bought as an investment property is more likely to appeal to professionals who don’t necessarily have time to maintain gardens or have children. So for these reasons it is important to identify the best investment properties in the area and where the biggest demand for tenants is.

Investment Property – Student Let

If you are looking to buy an investment property in a university town, then a house could present a good return on investment for student lets. Plus, there are now many more buy to let mortgages available for investment property that is being let to students.

Jenny Tweed is the founder of http://www.buytolet4sale.com, the UK's fastest growing investment property portal. UK & Overseas agents advertise for FREE their suitable investment property and landlords and investors regularly visit this popular site to find investment property for sale ranging from new builds, development projects, auction properties, discounted properties, pre-tenanted properties and more ..

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HYIP: No Longer Scam During December, HYIP Change Tactic Now

HYIP scam in December! Do not invest! December is a bad month for HYIP investing! HYIP scam for Christmas money!

I believe many must have heard of the above many times. For the past few years, December was the worst period to invest in HYIP. But in 2005, that trend seems to have ended. The worst month was in fact November! The statistic is based on the number of hyip that closes in November. (the statistic discounts 'baby' hyip)

HYIP scammers are now changing their tactics. They are closing shop early in November now. They believe that the take-in rate for new investors in December will be very low. This is bad for them as their ponzi system will be affected if there is no consistent inflow of new funds.

Best HYIP investment program

As a rule of thumb, most HYIP investors avoid investing during November, December and Janaury. Most HYIP investors will start investing in Feb. So what do you do during these 3 dangerous month?

There are a lot of opportunities occuring during these period. But do not expect any long term investing. Think short term during these period. A lot of short term HYIP will appear during these period. Invest with more care.

Best HYIP investment program - A reliable hyip monitoring site and it is the first site that combines hyip listing with a hyip blog.

Article Source: http://EzineArticles.com/?expert=Edwin_Tan

Best Savings Accounts

Savings accounts are opened by individuals and maintained by banks, credit unions and other financial institutions. Savings accounts pay interest on money that is deposited in the account. However, the money held in the savings account cannot be spent directly, such as by writing a check. Savings accounts are mainly aimed at allowing account holders to set aside a portion of their liquid assets as a part of their savings strategy. Savings accounts that offer better interest rates to account holders are preferred, as they allow savings to accumulate faster. Therefore, people must compare the interest rates offered by various financial institutions to the find the best savings account offering the best rates.

Savings account function differently as compared to checking accounts. The numbers of withdrawals, as well as transfers that can be made per month are limited, and savings account holders do not have the option of using checks to do so. It is also possible to use the money in these savings accounts to make purchases. However, in order to make purchases, savings account balances need to be transferred to either transactions deposit that are also known as checkable deposit or currency.

Offshore savings accounts are a great option available for people living and working abroad. Offshore savings accounts allow account holders to protect their wealth and hard-earned assets. They also allow people with global business interests to conduct business in a confidential and private manner. Health Savings Accounts or HSAs are designed to assist individuals to put aside savings for future qualified medical and retiree health expenses without incurring any taxes.

Savings accounts are established for the sole purpose of putting aside a part of income that comes in handy during retirement, emergencies or any future purchase. A flourishing savings account positively reflects on the account holders' credit score, as it establishes their superior money management skills.

Savings Accounts provides detailed information on Savings Account, Savings Account Online, Health Savings Account, Medical Savings Account and more. Savings Accounts is affiliated with US Savings Bond.

Article Source: http://EzineArticles.com/?expert=Elizabeth_Morgan

Cheap Personal Finance With Newly Equipped Benefits

From decade to decade, cheap personal finance has been providing monetary support to every sort of people. It advances amount to fulfil every small or sizable personal demands to the applicants. Cheap personal finance allocate amount that borrowers are looking for, to materialize their wishes in a trouble free or easy way. Cheap personal finance is classified into secured and unsecured form. If applicants have property to place for the loan, secured cheap personal finance is offered. For people without property like tenants and non-homeowners, unsecured option is designed. The unsecured option can be obtained by persons who are unwilling to place collateral against the loan.

The amount that you can borrow in cheap personal finance starts from £ 5,000 to £75,000. The repayment period of cheap personal finance is from 5 to 25 years. Finance cheap personal scheme allow even the bad credit holders to obtain loan and execute their demand after proper documentation. So, bad creditors should furnish credit and personal details precisely.

Cheap personal finance has cut down its prior rate of interest and offer fresh rates which every person will find affordable. The interest rates vary from lender to lender in the competitive market. So, applicants can take the advantage of this competitive atmosphere and spot a marginal rate which suits his repayment ability.

The application procedure of cheap personal finance has gone through many phases and has become faster and easier than before, with the adoption of online device. Approving of cheap personal finance through online method will help to get loan in instant and also it is the most well-liked application process.

The borrowers can supervise various demands in a single amount with cheap personal finance. They can purchase cars, consolidate debts, go for holidays, renovate house, weddings and higher education are some preferred ends which can easily be fulfilled with cheap personal finance.

Ben Gannon is a senior financial analyst at Cheap Finance UK with an acumen for business and loans. In recent years he has taken up to provide independent financial advice through his informative articles.To find Cheap personal finance visit http://www.cheapfinanceuk.co.uk

Article Source: http://EzineArticles.com/?expert=Ben_Gannon

Make Money Online - There Are Thousands Of Make Money Online Programs - Which Ones Actually Work?

Making money online and having extra time to spend with your kids or free time to yourself are the aspirations of many people, who go online every day looking for a way to make money online. Most ads will show you outrageous amounts of money you can make over a short period of time. Or the make money website will brag how much free time they have to spend doing what they want every day. This may be true for some people, but not the majority of people looking to make money online.

The truth is it takes time to build a way to make money online. The sites that boast that you can be rich over night, just are not telling you the whole truth. However, making money online can be a reality and some of these websites have good techniques. The problem is some websites have bits and pieces of information, that if combined would give you a better picture of how to make money online.

I have tried everything from MLM to selling real estate notes. I finally came across a few make money online websites, that if you put some effort into what they were saying, you could actually make a few extra dollars online. I have developed a website that pulls all of my experience with make money online programs into one guide that shows you some of the techniques used to help people make money online.

The make money online guide can be accessed through http://www.workathometoolchest.com. The make money online guide can be accessed instantly. This make money online guide doesn't boast that you will get rich, but it will help you get started making money online.

Jason writes for http://www.workathometoolchest.com A website dedicated to finding the best way to make money online. Sign up now for the make money online guide and start this program instantly.

Article Source: http://EzineArticles.com/?expert=Jason_Ohler

7 Keys to Effective Internet Monetization

What is internet monetization? Monetization is the process of converting an asset to cash, or money. Internet monetization is the conversion of internet assets to cash or money. And effective internet monetization is the process of converting internet assets to cash or money at a rate that exceeds the cost initially invested in the internet asset.

So what does that really mean? It means taking what we own on the internet and converting it to cash in our bank account. You see, no matter how many ebooks, subscribers, or how much traffic we have, if we do not convert it to cash, we are not effectively monetizing our internet assets.

So how do we do it?

First, we start with our internet assets. What are internet assets? Anything online that has the potential, either in the present or in the future, to create a stream of income is an internet asset.

These assets can include, but are not limited to: visitors to our web pages, web sites, landing pages, referral links, ebooks, information we own, information we know, patterns we understand, subscribers on our mailing lists, and anything else online that has the possibility of producing a revenue stream.

How do we monetize these? Ask yourself, how can I create an income stream from each of my internet assets? Just for starters, here are some ideas:

Internet Asset: Monetization Idea

Visitors to our web pages: convert into paying customers

Web sites: Increase conversion rate; add additional streams of income like affiliate links and Adsense revenue

Landing pages: convert traffic into subscribers for future monetization; offer confirmation page sales letter

Referral links: Actively promote them

Ebooks: Begin promoting them; sell them or give them away to create value

Information we know: Create an information product--an ebook, audio, or video presentation

Are you getting the picture here?

You should be constantly scouring all of your internet sales process and all of your online activity to determine where you can add in monetization. Begin to think big, to see everything as an income stream, and you will find serious success online!

To receive a free copy of the book “15 Steps to Internet Success”, click here:15 Steps to Internet Success

Sean Mize is a successful offline and online entrepreneur and marketer, and is currently writing his third book online.

Article Source: http://EzineArticles.com/?expert=Sean_Mize

Stock Market Secrets Advice Tips Tricks Trends of Stock Market of India

While making an investment in Indian stock market there are lots of thing you should consider before it. I will guide you most important thing and tips that you can implement while making any investment in stock market of India. These stock market tips and tricks are based on many years of expertise experience and as a professional expert in Indian stock market. These are the Stock market secrets ........

Buy at low and sell at high: - This is way to make money in stock market that you should buy at lower prices and should sell at higher prices. It determines the success and failure of an investor in stock market of India. Stock Market Trend: - If you want to be a successful investor in stock market of India you should have perfect idea of stock market and what is going on in the stock market. For this you should have up to date with Indian stock market news.

If stock market is going up try to search out reason behind it. If market is going down then also try the same. Make your mind calculation with these points and than come to a final decision whether you should keep sell or buy. Down and up it is the duty of stock market of India. Stay longer with stock market may result in profit or may be results in loss, it’s totally depends upon the reason why these major up downs have been taking place in stock market. In case you have got the right point than you will get other wise loss.

Current Trend of Stock Market: - As per current trend of stock market it has been seen that once stock market rise at higher speed it down also with same speed and if stock market have gone down there is more possibilities of getting up. This is the current market trends but it can be change in future.

Keep patience: - Patience is also plays a vital role in your winning and losing. In stock market many peoples take immediate decisions which can result in big losses later on. This is the nature of stock market every step should be take after a deep thinking and consideration on it.

If you want to be a earn money in India Stock Market then you have to remember these things. Find more online stock trading tips.

Article Source: http://EzineArticles.com/?expert=Prabhat_Kumar

Switching Banks: Is Your Bank Giving You The Best Deal?

If you believe that your bank is costing a more money than it really needs to be, then perhaps it is time to change the habit of a lifetime and switch banks. Although many people remain loyal to their banks for life, there is no need to do this. Your bank is a business and they will treat you as such, and so in turn you should look for the best deals possible. Here are some tips on whether you should switch banks or not.

Why switch banks?

Although many people are happy with their banks, this does not mean they are getting the best deal. Obviously, if you are unhappy with your bank then it is time to look elsewhere. However, if you have been with one bank for a while then perhaps it is time to look at the alternatives. If you find that you current bank is still the best, then great. If not, then you could save yourself some money.

Look for the best deal

Before you switch banks, it is crucial that you shop around. Just because you are switching banks doesn’t mean you should switch to the first good deal you come across. Look at all the alternatives, including online banks and credit unions, before deciding on which bank has the best deal for you.

Contact you current bank

If you are thinking about moving banks, then before you do so you should contact your current bank and see if they can match the terms you can get from another bank. Don’t tell your bank you are thinking of leaving as they might remove certain privileges you have. Instead, try and negotiate a new deal, as it is often easier to get a better deal from your current bank than move to a new bank. However, if your current bank doesn’t want to negotiate then you know it is time to switch banks.

Complete application process

Once you have found the right bank for your needs, you need to complete the application process. Once you have filled in any necessary forms and made sure that all the terms make sense, your new bank can begin the process of transferring your payments and money from your old bank. If you have fairly regular accounts then this should only take a week or so to complete.

Advantages of switching banks

Of course, then main advantage of switching banks is that you can get better terms on the financial products that you already have. You may also be able to get new features from a different bank that will help you to save money or make banking easier for you.

Disadvantages of changing banks

Although there are advantages to switching banks, you must remember that it is won’t always be so easy. If you have complex accounts or are borrowing money from your old bank, then the procedure might become more complicated. Also, if you switch banks regularly it can seem like you are financially unstable. Although switching banks isn’t always the best option, if you are unhappy with your current bank or want to get a better deal then you should look at what other banks have to offer.

Peter Kenny is a writer for The Thrifty Scot. Please visit us at Savings Accounts and Child Trust Funds Visit www.thriftyscot.co.uk

Article Source: http://EzineArticles.com/?expert=Peter_Kenny

Give Shape To Your Dreams With Cheap Personal Finance?

In the present world, each and every individual is looking for some external source of finance to cope with the delinquencies of the existing environment. An obvious choice would be seeking refuge in loans for all your requirements. And these days, there is no dearth of the lenders offering cheap personal finance for all your needs. All you need to do is search well. Let us discuss all the relevant details about cheap personal finance like where and how you should search to find the best nominal rates.

As implied by its very name, cheap personal finance can be availed for nominal rates and are thus synonymous with secured personal finance, as well. For these loans, you will have to offer some of your assets as collateral to secure the loan amount, which will be seized by your lender, in case of non repayment of the loan amount.

In turn of the risk coverage factor, your lender will facilitate you with a large number of benefits. Some of the advantages of cheap personal finance are lower rate of interest, larger loan amount and flexible terms of repayment etc. So, in order to order to avail the innumerable benefits of cheap personal finance, you will have to be extra careful with the repayment schedule of the loan amount.

For cheap personal finance, it is recommended to borrow up to a limit, which you require and can repay easily. You can take up cheap personal finance for any of your needs. From repair of home to debt consolidation and educational purpose to purchase of vehicle, you can use it for all.

For best deal of cheap personal finance, you can make your search through various online sources. There you will find a large number of lenders at a single place. Compare the quotes offered by the different lenders and choose the best deal.

Ben Gannon is a senior financial analyst at Cheap Finance UK with an acumen for business and loans. In recent years he has taken up to provide independent financial advice through his informative articles. His articles are widely read because of the lucid manner of writing and thoroughly researched datas. To find Finance UK, personal finance, personal finance UK, business finance, small business finance, small business finance UK, Cheap personal finance, cheap personal finance UK that best suits your need visit http://www.cheapfinanceuk.co.uk

Article Source: http://EzineArticles.com/?expert=Ben_Gannon

Easy Mode Of Online Money Transfer

The need to transfer money has become a regular requirement for us. Transferring money to children studying abroad, transferring money back home for those working abroad, making payments for goods and services purchased abroad are some of the general requirements that necessitates fast and secured money transfer services. Online money transfer services are the best solution for these types of requirements. Fast, secured, and affordable, the popularity of online money transfer services is steadily growing.

Online money transfer is the best choice for online businesses. Fast, reliable, and affordable, online purchases, auctions, sales, etc can be easily transacted with reliable online money transfer services such as epay. Security is the prime concern as far as online money transfer is concerned. This is why some online money transfer services have excelled while a huge lot of others are striving for recognition. An authentic and reputed online money transfer service provider will allow you to transfer easy money online in the most secured way. Epay.vg, for example, is a secured online money transfer service provider. Epay works on the lines of some of the most reputed online money transfer services and incorporates all the leading technologies to ensure that money transfer with epay is reliable.

Ease of use is another aspect that determines the popularity of any online money transfer. Transacting money online through epay is just like maintaining a bank account. You would need to open an online free account with epay and fund it from any existing bank account. Once funded, you can start using epay for a whole lot of purposes. Some online money transfer services also allow users to transact using mobile phones, and emails. Epay is one of them. If you are looking forward to start using online money transfer services, you check out and compare the services that various providers are offering.

Myself webmaster of http://www.epay.vg dealing in Online Money Transfer, online payment gateway, virtual credit cards, virtual debit cards, international money transfer, money transfer services, email payment, mobile payment & other e-currency transfer services

Article Source: http://EzineArticles.com/?expert=Anirban_Bhattacharya

Four Essential Characteristics Your Target Market Should Have

The term target market is used because that market is the "bull's eye" at which you aim all your marketing efforts and marketing budget. So, don't forget that a target market is people - People with common characteristics that set them apart as a group. The more statistics you have about your target market, the more precisely you can develop your marketing strategy; therefore you will be able to execute consistently and profitably over time instead of quick hits here and there. Your existing and potential customers should have four essential characteristics:

1. They have a particular need. People have all kinds of needs including basic survival needs (e.g., food, shelter, health), rational needs (e.g., dependability, durability, economy), and emotional needs (e.g., love, sex appeal, status, security, acceptance, and power). Do you truly understand the needs of your target market? Keep in mind that everyone may need your service but not everyone will want to fulfill their needs with your solution. When you define the needs, also make sure you target those who you can persuade to fulfill their needs with you.

2. They have enough money to buy what you're selling. Just because someone wants to buy what you're selling does not mean they have enough money to do so. I get tons of people telling me they love my service offerings and they really need my help but when I ask them about their budget for training and education they say, "I don't have a budget set." This tells me they can't afford to buy what I'm selling. Don't get me wrong, it's great to do pro bono work and give back to your community. Just make sure that you've targeted a market that can provide you the profits in order to sustain your business. Make sense?

3. They have decision-making power. Spend your time wisely. Find the person who has the actual authority to say "yes" or "no" to buying your solution. Enough said.

4. They have easy access to your solution. Accessibility is important. For example, if you wish to sell decorative baskets to people in your neighborhood, you must either take your baskets directly to your customers or have a location where they can come to you. If you primarily sell online or have services, just make sure your target understand how they can access your solution by telling them exactly where to go and what to expect. In order to determine the characteristics above you must do your research and document your findings. Your documentation based on the above characteristics form the foundation of finalizing the best target market for your business. Yes, this is business 101 but sometimes we forget that the basics are the glue that will hold your business together and help you STAY in business.

About the Author:

Sherese Duncan is the Author of the Award Winning Ezine, The Street Perspective, a bi-weekly eZine for small biz owners who want straight-to-the-point simple strategies to increase profits and increase cash flows. Sign up for your free profit strategies at http://www.thestreetperspective.com

Article Source: http://EzineArticles.com/?expert=Sherese_Duncan

Investments and the Ways to Make Money

Most people don't spend much time wondering what money is. Their only major concern is how much they have, and how to get more!

What is money?

It is a medium of exchange.

What does it do?

It ensures the success of exchange by being the one item on offer that is ALWAYS acceptable.

Why is it necessary?

Because human beings must exchange to live together in peace, and to prosper!

That's all!

On the other hand, without money, the production and exchange of anything but the most rudimentary goods and services is impossible. It is not difficult, or time consuming, or inefficient, it is IMPOSSIBLE!

Animals don't exchange (or trade) amongst one another. They are self-sufficient, or they take from each other, or they exercise the prerogative of superior strength and/or cunning.

There are some human beings who get along in a very similar fashion, but the overwhelming majority recognise the benefits of voluntary exchange.

Strictly speaking, the use of the word "voluntary" in this context is redundant. The phrase "your money or your life" is not the precursor to an exchange, whether the person uttering it brandishes a gun or a government identity card!

The first rule of any voluntary exchange is simplicity itself. If two people are willing to exchange, each must view the results of the exchange as being beneficial. If either of them is not of that view, the exchange will not take place.

The ways to make money in this world are simple:

Marry someone who is already rich.

Have a rich person die and will you their money.

Strike oil.

Discover gold

Win the lottery.

Rob a bank.

Work for it ...

Or have it work for you through investments!

In investing, you don't have to be an expert to take advantage of real opportunities!

But, in order to invest with confidence, profitable success and consistency and be able to take advantage of opportunities, first you should assure, that all your essential financial needs and responsibilities are met.

Then, start with:

1. Setting aside sufficient liquid funds for cases of emergency.

2. Making sure you are completely and adequately insured.

3. Building a reasonable retirement plan.

4. Getting out of debt -- and staying out!

5. Determining your time frame, and

6. Start investing with the aim of becoming financially independent!

As each of us enters different stages of life, our changing family status and objectives, incomes, expenses and living standards shape our investment strategy.

By having a clear idea of what you want your investment to accomplish, you'll be able to put your money to work more productively.

Investing is generally defined as the conversion of risk-free assets into risky ones with prospects of greater return.

Every investment has a certain amount of risk associated with it. You can minimize risk, if you are able to understand the different characteristics of the various investments and build your portfolio accordingly.

Given the existence of risk, why invest at all?

Because historically, the existence of greater risk is commensurate with greater rewards for investors.

You are almost certain to pick a bad investment sometime. The secret then is to cut your loss as soon as possible.

Unfortunately, most people find this very difficult to do. No one likes to think that he has made a mistake and there is a big temptation to hold on and hope for better days.

But there is almost always a time when an investment starts to turn sour that you can get out with only a small loss.

If you hold on you could be on the losing side for many years and then lose even more money in the end.

Having the courage to admit that you were wrong is an essential technique of successful investment as well as in other aspects of life.

A Swiss banker put it rather well:

"If you are losing a tug-of-war with a lion, give him the rope before he gets your arm ...

You can always buy a new rope."

Ioannis - Evangelos C. Haramis

I was born in Athens, Greece and I studied Business Administration, Marketing and Economics in Greece, in the U.S.A. and in Belgium.

I am active in the equity and money markets as an investor, stockbroker and consultant to individual investors and various funds.

I am the publisher and editor of the "Learn to Invest" www.GreekShares.com web site and the author of "The Stock Market Guide to Profitable Investments" book.

Since 2002 I am also the New Business Development Director at a Greek Bank.

Article Source: http://EzineArticles.com/?expert=Ioannis_-_Evangelos_Haramis

Online Business Directory

Online business directories are becoming a useful tool for people around the world. Online business directories are just another spin-off advantage of having an internet connection. The World Wide Web is where many people are turning to find all sorts of different information. Now online directories are just another useful portal where people are directed to information on the internet. People use these search engines to find specific products, services and information on the World Wide Web.

Small and Large businesses are benefiting from increased internet exposure to potential clients with these directory services. Online directories help people find your company information or your services and products. Therefore, the first major benefit of online business directories for companies is to get more clients finding products, services and company information. For a small yearly or monthly fee, businesses can get advanced and specialized advertising to clients through online business directories.

Online directories are useful tools for consumers as they provide instant and accurate information on particular items, services, products and companies. This means that more people are using online business directories due to convenient, fast and easy information available on the internet. In addition, companies are getting new customers by being listed on online business directories. Therefore, the potential for more sales through new customers is vastly improved for companies.

Another great benefit to being listed on an online business directory is that customers who are specifically looking for your products or services will find your company. This means that the clients who are led to your company information are quality clients who will most likely buy your products and services. Clients who find your company information through these searches also have more faith in your products and services as your company is part of an exclusive network. Listed companies can also become a part of a networking community, where companies can benefit from enhanced business relationships.

There are millions of people searching the internet for businesses, products and services, why would you not take the opportunity to benefit from internet exposure, which is affordable? Get advanced advertising and internet marketing for your business, products and services by getting a listing on an online business directory. Watch your business grow, as more people are able to find your website, company information, products and services using an online business directory.

Phil Smulian writes for a business net working web site, who will provide info on a small business network, Find In Africa.

Article Source: http://EzineArticles.com/?expert=Phil_Smulian

10 Simple Rules to Make You Serious Money in the Sharemarket

10 Simple Rules to Make You Serious Money in the Sharemarket
Don't Fall in Love with You're Stocks(Collect a Free EBOOK - see website)

It appears that I have a dislike for admitting that I could ever get it wrong and this explains why I sometimes can't take a loss. On the other side of the equation: if I was wrong and XYZ was not going to make me a fortune - then what could I do?

Okay I spotted one of my stocks in the "Shares" magazine - I confess! I was just reading about all the up-and-coming stars and there was this little snippet asking a question like: "Could this be a new Microsoft?". Now they may not have said that exactly, but it was enough to make me think XYZ was a good news story as its price will testify - at the time(in the 70's ). I mean it was there - it had to have some merit!

It was a miner and had a technology company in its portfolio and a percentage of another tech company and was doing very little in the resources area because there was more hype in tech shares at the time. It was a time when many miners were turning into tech companies. Can you visualize the miners making their way to the goldfields?

Well I was right into that - so I bought heaps and the crazy part was that I was not going to sell something that had such a great future. Nearly $60 000 went into this company and I've still got it. Not because I am still in love, but because it's nearly worthless. It will be a reminder to me never to do that again!

How much is this RULE really worth to me? That's simple - without counting any other stock in my tech-wrecked portfolio, this RULE is worth $59 494.45 saved.

If I just add one more, an online retailer, which cost me $69 928.20, my total saving would be $129 422.65. So if someone had given me the above rule to live by, I could have sold out early and kept most of $129 000.

The unloved by the market, which included many of my startups have plummeted since the tech boom - some went up like shooting starts, only to be blasted to pieces and fall back to Earth. You won't get directors coming out to say that the market has put an outrageous price on this company or that one, and that really, there is no substance to back up the price. However someone will notice that the king is really naked and when they do there is no mercy from the crowd.

I have heard say, "The market is always right", and maybe it's not a bad one to remember. Those that didn't participate in the tech boom will have lost considerable money and those that fell in love with the naked royalty will have lost their shirts.

Does it hurt? You bet it does! It hurts every day, but it will get better one day - I hope! It was a great experience, even though it was a painful one. Now it is you, the reader, who stands to benefit from my mistakes; which increases the value of such insights and will make this book probably the most treasured book about the market's affect on individuals' psychology and an awesome reminder of the pitfalls of sharemarket speculation.

Do I think that I'm the worst case? NO WAY!! You only have to look back in time to see what companies, underwriters and well-established financial houses paid for software companies and internet security companies - even our beloved Telstra(using the taxpayer's wealth) suffered its billion dollar nightmares, not to mention News Corp's businesses going bust. The bigger they are the harder they have fallen: Enron, Vivendi, Worldcom and others handing over billions as if there was no tomorrow. Well now the penny has well and truly dropped as these huge gorillas fight for their survival under a pile of debt and scandal. Nope...I'm in good company. The scandals and falls since June 2002 have certainly been enough to scare me. We live in hope that we don't end up with a depression and that the losses of up to $US8 trillion at the time of writing, are finally stemmed without bringing the whole financial system to its knees.

How many lucky devils bought News Corp at $26 and how many have watched the decent to $8.46? Losing $12 billion in one year only makes people want to

Financial Management:

Financial Management: How To Make a Go Of Your Business

by Linda Howarth Mackay

Produced in cooperation with the American Association of Community and Junior Colleges

Charles Liner, SEA Contracting Officer’s Technical Representative Judy Nye, Project Director, AACJC Martha McKemie, Senior Writer-Editor, SEA Amelia Harris, Graphics, SEA

Contents

About the Author

Introduction

I. The Necessity of Financial Planning

What is Financial Management? Tools of Financial Planning

II. Understanding Financial Statements: A Health Checkup for Your Business

The Balance Sheet The Statement of Income

III. Financial Ratio Analysis

Balance Sheet Ratio Analysis Income Statement Ratio Analysis Management Ratios Sources of Comparative Information

IV. Forecasting Profits

Facts Affecting Pro Forma Statements The Pro Forma Income Statement Comparison with Actual Monthly Performance Break-Even Analysis

V. Cash Flow Management: Budgeting and Controlling Costs

The Cash Flow Statement

VI. Pricing Policy

Establishing Selling Prices A Pricing Example The Retailers Mark-Up Pricing Policies and Profitability Goals

VII. Forecasting and Obtaining Capital

Types and Sources of Capital Borrowing Working Capital Borrowing Growth Capital Borrowing Permanent Equity Capital Applying for Capital

VIII. Financial Management Planning

Long-Term Planning

For Further Information

About the Author

Linda Howarth Mackay has many years’ banking experience gained working in a rural community bank and two large regional banks. Her expertise is in commercial and agricultural lending and in correspondent banking. She is also knowledgeable in the regulation of commercial bank lending practices, with an extensive background in the establishment of policy and procedures and in portfolio administration.

A graduate of Indiana University, Bloomington, Indiana, and numerous banking, accounting, and lending seminars, she is now president of Howarth Mackay, Incorporated, a company providing financial consultation to businesses, financial institutions, and professional individuals.

Introduction

This booklet was designed to equip instructors of the National Small Business Training Network course 'Financial Management: How to Make a Go of Your Business' with the information required to acquaint the small business owner/manager with the basic tools of sound financial management. It supplements the course guide materials; it is not intended to replace their use by the instructor.

The booklet may also be used by anyone interested in learning the concepts of financial management.

I. The Necessity of Financial Planning

There is one simple reason to understand and observe financial planning in your business--to avoid failure. Eight of ten new businesses fail primarily because of the lack of good financial planning.

Financial planning affects how and on what terms you will be able to attract the funding required to establish, maintain, and expand your business. Financial planning determines the raw materials you can afford to buy, the products you will be able to produce, and whether or not you will be able to market them efficiently. It affects the human and physical resources you will be able to acquire to operate your business. It will be a major determinant of whether or not you will be able to make your hard work profitable.

This manual provides an overview of the essential components of financial planning and management. Used wisely, it will make the reader--the small business owner/manager--familiar enough with the fundamentals to have a fighting chance of success in today’s highly competitive business environment.

A clearly conceived, well documented financial plan, establishing goals and including the use of Pro Forma Statements and Budgets to ensure financial control, will demonstrate not only that you know what you want to do, but that you know how to accomplish it. This demonstration is essential to attract the capital required by your business from creditors and investors.

What Is Financial Management?

Very simply stated, financial management is the use of financial statements that reflect the financial condition of a business to identify its relative strengths and weaknesses. It enables you to plan, using projections, future financial performance for capital, asset, and personnel requirements to maximize the return on shareholders’ investment.

Tools of Financial Planning

This manual introduces the tools required to prepare a financial plan for your business’s development, including the following:

* Basic Financial Statements--the Balance Sheet and Statement of Income

* Ratio Analysis--a means by which individual business performance is compared to similar businesses in the same category

* The Pro Forma Statement of Income--a method used to forecast future profitability

* Break-Even Analysis--a method allowing the small business person to calculate the sales level at which a business recovers all its costs or expenses

* The Cash Flow Statement--also known as the Budget identifies the flow of cash into and out of the business

* Pricing formulas and policies--used to calculate profitable selling prices for products and services

* Types and sources of capital available to finance business operations

* Short- and long-term planning considerations necessary to maximize profits

The business owner/manager who understands these concepts and uses them effectively to control the evolution of the business is practicing sound financial management thereby increasing the likelihood of success.

II. Understanding Financial Statements: A Health Checkup for Your Business

Financial Statements record the performance of your business and allow you to diagnose its strengths and weaknesses by providing a written summary of financial activities. There are two’ primary financial statements: the Balance Sheet and the Statement of Income.

The Balance Sheet

The Balance Sheet provides a picture of the financial health of a business at a given moment, usually at the close of an accounting period. It lists in detail those material and intangible items the business owns (known as its assets) and what money the business owes, either to its creditors (liabilities) or to its owners (shareholders’ equity or net worth of the business).

Assets include not only cash, merchandise inventory, land, buildings, equipment, machinery, furniture, patents, trademarks, and the like, but also money due from individuals or other businesses (known as accounts or notes receivable).

Liabilities are funds acquired for a business through loans or the sale of property or services to the business on credit. Creditors do not acquire business ownership, but promissory notes to be paid at a designated future date.

Shareholders’ equity (or net worth or capital) is money put into a business by its owners for use by the business in acquiring assets.

At any given time, a business’s assets equal the total contributions by the creditors and owners, as illustrated by the following formula for the Balance Sheet:

Assets = Liabilities + Net Worth

(Total (Funds (Funds funds supplied supplied invested in to the to the assets of business business the by its by its business) creditors) owners)

This formula is a basic premise of accounting. If a business owes more money to creditors than it possesses in value of assets owned, the net worth or owner’s equity of the business will be a negative number.

The Balance Sheet is designed to show how the assets, liabilities, and net worth of a business are distributed at any given time. It is usually prepared at regular intervals; e.g., at each month’s end but especially at the end of each fiscal (accounting) year.

By regularly preparing this summary of what the business owns and owes (the Balance Sheet), the business owner/manager can identify and analyze trends in the financial strength of the business. It permits timely modifications, such as gradually decreasing the amount of money the business owes to creditors and increasing the amount the business owes its owners.

All Balance Sheets contain the same categories of assets, liabilities, and net worth. Assets are arranged in decreasing order of how quickly they can be turned into cash (liquidity). Liabilities are listed in order of how soon they must be repaid, followed by retained earnings (net worth or owner’s equity), as illustrated in Figure 2-1, below, the sample Balance Sheet for ABC Company.

The categories and format of the Balance Sheet are established by a system known as Generally Accepted Accounting Principles (GAAP). The system is applied to all companies, large or small, so anyone reading the Balance Sheet can readily understand the story it tells.

Figure 2-1 ABC Company December 31, 19- Balance Sheet

Cash $ 1,896 Notes Payable, $ 2,000 Bank

Accounts 1,456 Accounts 2,240 Receivable Payable

Inventory 6,822 Accruals 940 ------- ------- Total Current $10,174 Total Current $ 5,180 Assets Liabilities

Equipment and 1,168 Total Liabilities 5,180 Fixtures

Prepaid Expenses 1,278 Net Worth 7,440 ------- ------- Total Assets $12,620 Total Liabilities $12,620 and New Worth

Balance Sheet Categories

Assets: An asset is anything the business owns that has monetary value.

* Current Assets include cash, government securities, marketable securities, accounts receivable, notes receivable (other than from officers or employees), inventories, prepaid expenses, and any other item that could be converted into cash within one year in the normal course of business.

* Fixed Assets are those acquired for long-term use in a business such as land, plant, equipment, machinery, leasehold improvements, furniture, fixtures, and any other items with an expected useful business life measured in years (as opposed to items that will wear out or be used up in less than one year and are usually expensed when they are purchased). These assets are typically not for resale and are recorded in the Balance Sheet at their net cost less accumulated depreciation.

* Other Assets include intangible assets, such as patents, royalty arrangements, copyrights, exclusive use contracts, and notes receivable from officers and employees.

Liabilities: Liabilities are the claims of creditors against the assets of the business (debts owed by the business).

* Current Liabilities are accounts payable, notes payable to banks, accrued expenses (wages, salaries), taxes payable, the current portion (due within one year) of long-term debt, and other obligations to creditors due within one year.

* Long-Term Liabilities are mortgages, intermediate and long-term bank loans, equipment loans, and any other obligation for money due to a creditor with a maturity longer than one year.

* Net Worth is the assets of the business minus its liabilities. Net worth equals the owner’s equity. This equity is the investment by the owner plus any profits or minus any losses that have accumulated in the business.

The Statement of Income

The second primary report included in a business’s Financial Statement is the Statement of Income. The Statement of Income is a measurement of a company’s sales and expenses over a specific period of time. It is also prepared at regular intervals (again, each month and fiscal year end) to show the results of operating during those accounting periods. It too follows Generally Accepted Accounting Principles (GAAP) and contains specific revenue and expense categories regardless of the nature of the business.

Statement of Income Categories

The Statement of Income categories are calculated as described below:

* Net Sales (gross sales less returns and allowances)

* Less Cost of Goods Sold (cost of inventories)

* Equals Gross Margin (gross profit on sales before operating expenses)

* Less Selling and Administrative Expenses (salaries, wages, payroll taxes and benefits, rent, utilities, maintenance expenses, office supplies, postage, automobile/vehicle expenses, insurance, legal and accounting expenses, depreciation)

* Equals Operating Profit (profit before other non-operating income or expense)

* Plus Other Income (income from discounts, investments, customer charge accounts)

* Less Other Expenses (interest expense)

* Equals Net Profit (Loss) Before Tax (the figure on which your tax is calculated)

* Less Income Taxes (if any are due)

* Equals Net Profit (Loss) After Tax

For an example of a Statement of Income, see Figure 2-2, the statement of ABC Company.

Figure 2-2 ABC Company December 31, 19- Income Statement

Net Sales $68,116 Cost of Goods Sold 47,696 ------- Gross Profit on Sales $20,420 Expenses Wages $6,948 Delivery Expenses 954 Bad Debts Allowances 409 Communications 204 Depreciation Allowance 409 Insurance 613 Taxes 1,021 Advertising 1,566 Interest 409 Other Charges 749 ------ Total Expenses $13,282 Net Profit 7,138 Other Income 886 ------- Total Net Income $ 8,024

Calculating the Cost of Goods Sold

Calculation of the Cost of Goods Sold category in the Statement of Income (or Profit-and-Loss Statement as it is sometimes called) varies depending on whether the business is retail, wholesale, or manufacturing. In retailing and wholesaling, computing the cost of goods sold during the accounting period involves beginning and ending inventories. This, of course, includes purchases made during the accounting period. In manufacturing it involves not only finished-goods inventories, but also raw materials inventories goods-in-process inventories, direct labor, and direct factory overhead costs.

Regardless of the calculation for Cost of Goods Sold, deduct the Cost of Goods Sold from Net Sales to get Gross Margin or Gross Profit. From Gross Profit, deduct general or indirect overhead such as selling expenses, office expenses, and interest expenses, to calculate your Net Profit. This is the final profit after all costs and expenses for the accounting period have been deducted.

III. Financial Ratio Analysis

The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of your business.

Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.

Balance Sheet Ratio Analysis

Important Balance Sheet Ratios measure liquidity and solvency (a business’s ability to pay its bills as they come due) and leverage (the extent to which the business is dependent on creditors’ funding). They include the following ratios:

Liquidity Ratios.

These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick Ratio, and Working Capital.

Current Ratios. The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:

Total Current Assets Current Ratio = ------------------------- Total Current Liabilities

The main question this ratio addresses is: 'Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets, such as inventory shrinkage or collectable accounts?' A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort.

If you decide your business’s current ratio is too low, you may be able to raise it by:

* Paying some debts. * Increasing your current assets from loans or other borrowings with a maturity of more than one year. * Converting noncurrent assets into current assets. * Increasing your current assets from new equity contributions. * Putting profits back into the business.

Quick Ratios. The Quick Ratio is sometimes called the 'acid-test' ratio and is one of the best measures of liquidity. It is figured as shown below:

Quick Ratio = Cash + Government Securities + Receivables ---------------------------- Total Current Liabilities

The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding inventories, it concentrates on the really liquid assets, with value that is fairly certain. It helps answer the question: 'If all sales revenues should disappear, could my business meet its current obligations with the readily convertible `quick’ funds on hand?'

An acid-test of 1:1 is considered satisfactory unless the majority of your 'quick assets' are in accounts receivable, and the pattern of accounts receivable collection lags behind the schedule for paying current liabilities.

Working Capital. Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below:

Working Capital = Total Current Assets - Total Current Liabilities

Bankers look at Net Working Capital over time to determine a company’s ability to weather financial crises. Loans are often tied to minimum working capital requirements.

A general observation about these three Liquidity Ratios is that the higher they are the better, especially if you are relying to any significant extent on creditor money to finance assets.

Leverage Ratio

This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner’s equity):

Debt/Worth Ratio = Total Liabilities ----------------- Net Worth

Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business, making it correspondingly harder to obtain credit.

Income Statement Ratio Analysis

The following important State of Income Ratios measure profitability:

Gross Margin Ratio

This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net sales. It measures the percentage of sales dollars remaining (after obtaining or manufacturing the goods sold) available to pay the overhead expenses of the company.

Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses in your business. The Gross Margin Ratio is calculated as follows:

Gross Margin Ratio = Gross Profit ------------ Net Sales (Gross Profit = Net Sales - Cost of Goods Sold)

Net Profit Margin Ratio

This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity to compare your company’s 'return on sales' with the performance of other companies in your industry. It is calculated before income tax because tax rates and tax liabilities vary from company to company for a wide variety of reasons, making comparisons after taxes much more difficult. The Net Profit Margin Ratio is calculated as follows:

Net Profit Margin Ratio = Net Profit Before Tax --------------------- Net Sales

Management Ratios

Other important ratios, often referred to as Management Ratios, are also derived from Balance Sheet and Statement of Income information.

Inventory Turnover Ratio

This ratio reveals how well inventory is being managed. It is important because the more times inventory can be turned in a given operating cycle, the greater the profit. The Inventory Turnover Ratio is calculated as follows:

Inventory Turnover Ratio = Net Sales ------------------------- Average Inventory at Cost

Accounts Receivable Turnover Ratio

This ratio indicates how well accounts receivable are being collected. If receivables are not collected reasonably in accordance with their terms, management should rethink its collection policy. If receivables are excessively slow in being converted to cash, liquidity could be severely impaired. The Accounts Receivable Turnover Ratio is calculated as follows:


Net Credit Sales/Year = Daily Credit Sales --------------------- 365 Days/Year

Accounts Receivable Turnover (in days) = Accounts Receivable ------------------- Daily Credit Sales

Return on Assets Ratio

This measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business. A low ratio in comparison with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio is calculated as follows:

Return on Assets = Net Profit Before Tax --------------------- Total Assets


Return on Investment (ROI) Ratio.

The ROI is perhaps the most important ratio of all. It is the percentage of return on funds invested in the business by its owners. In short, this ratio tells the owner whether or not all the effort put into the business has been worthwhile. If the ROI is less than the rate of return on an alternative, risk-free investment such as a bank savings account or certificate of deposit, the owner may be wiser to sell the company, put the money in such a savings instrument, and avoid the daily struggles of small business management. The ROI is calculated as follows:


Return on Investment = Net Profit before Tax --------------------- Net Worth

These Liquidity, Leverage, Profitability, and Management Ratios allow the business owner to identify trends in a business and to compare its progress with the performance of others through data published by various sources. The owner may thus determine the business’s relative strengths and weaknesses.

Sources of Comparative Information

Sources of comparative financial information which you may obtain from your public library or the publishers include the following:

Almanac of Business and Industrial Financial Ratios, Leo Troy, Prentice-Hall, Inc., Englewood Cliffs, NJ 07632

Annual Statement Studies, Robert Morris Associates, P. O. Box 8500, S-1140, Philadelphia, PA 19178

Expenses in Retail Business, National Cash Register Corporation, Corporate Advertising and Sales Promotion Dayton, OH 45479.

Key Business Ratios, Dun & Bradstreet, Inc., 99 Church Street, New York, NY 10007, ATTN: Public Relations and Advertising Department

IV. Forecasting Profits

Forecasting, particularly on a short-term basis (one year to three years), is essential to planning for business success. This process, estimating future business performance based on the actual results from prior periods, enables the business owner/manager to modify the operation of the business on a timely basis. This allows the business to avoid losses or major financial problems should some future results from operations not conform with reasonable expectations. Forecasts--or Pro Forma Income Statements and Cash Flow Statements as they are usually called--also provide the most persuasive management tools to apply for loans or attract investor money. As a business expands, there will inevitably be a need for more money than can be internally generated from profits.

Facts Affecting Pro Forma Statements

Preparation of Forecasts (Pro Forma Statements) requires assembling a wide array of pertinent, verifiable facts affecting your business and its past performance. These include:

* Data from prior financial statements, particularly: a. Previous sales levels and trends b. Past gross percentages c. Average past general, administrative, and selling expenses necessary to generate your former sales volumes d. Trends in the company’s need to borrow (supplier, trade credit, and bank credit) to support various levels of inventory and trends in accounts receivable required to achieve previous sales volumes

* Unique company data, particularly: a. Plant capacity b. Competition c. Financial constraints d. Personnel availability

* Industry-wide factors, including: a. Overall state of the economy b. Economic status of your industry within the economy c. Population growth d. Elasticity of demand for the product or service your business provides e. Availability of raw materials

Once these factors are identified, they may be used in Pro Formas, which estimate the level of sales, expense, and profitability that seem possible in a future period of operations.

The Pro Forma Income Statement

In preparing the Pro Forma Income Statement, the estimate of total sales during a selected period is the most critical 'guesstimate.' Employ business experience from past financial statements. Get help from management and salespeople in developing this all-important number.

Then assume, for example, that a 10 percent increase in sales volume is a realistic and attainable goal. Multiply last year’s net sales by 1.10 to get this year’s estimate of total net sales. Next, break down this total, month by month, by looking at the historical monthly sales volume. From this you can determine what percentage of total annual sales fell on the average in each of those months over a minimum of the past three years. You may find that 75 percent of total annual sales volume was realized during the six months from July through December in each of those years and that the remaining 25 percent of sales was spread fairly evenly over the first six months of the year.

Next, estimate the cost of goods sold by analyzing operating data to determine on a monthly basis what percentage of sales has gone into cost of goods sold in the past. This percentage can then be adjusted for expected variations in costs, price trends, and efficiency of operations.

Operating expenses (sales, general and administrative expenses, depreciation, and interest), other expenses, other income, and taxes can then be estimated through detailed analysis and adjustment of what they were in the past and what you expect them to be in the future.

Comparison with Actual Monthly Performance

Putting together this information month by month for a year into the future will result in your business’s Pro Forma Statement of Income. Use it to compare with the actual monthly results from operations by using the SBA form 1099 (4-82) Operating Plan Forecast (Profit and Loss Projection). Obtain this form from your local SBA office. You will find it helpful to refer to the SBA Guidelines for Profit and Loss Projection. Preparation of the information is summarized below and on the back of the form 1099.

Revenue (Sales)

* List the departments within the business. For example, if your business is appliance sales and service, the departments would include new appliances, used appliances, parts, in-shop service, on-site service.

* In the 'Estimate' columns, enter a reasonable projection of monthly sales for each department of the business. Include cash and on-account sales. In the 'Actual' columns, enter the actual sales for the month as they become available.

* Exclude from the Revenue section any revenue not strictly related to the business.

Cost of Sales

* Cite costs by department of the business, as above.

* In the 'Estimate' columns, enter the cost of sales estimated for each month for each department. For product inventory, calculate the cost of the goods sold for each department (beginning inventory plus purchases and transportation costs during the month minus the inventory). Enter 'Actual' costs each month as they accrue.

Gross Profit

* Subtract the total cost of sales from the total revenue.

Expenses

* Salary Expenses: Base pay plus overtime.

* Payroll Expenses: Include paid vacations, sick leave, health insurance, unemployment insurance, Social Security taxes.

* Outside Services: Include costs of subcontracts, overflow work farmed-out, special or one-time services.

* Supplies: Services and items purchased for use in the business, not for resale.

* Repairs and Maintenance: Regular maintenance and repair, including periodic large expenditures, such as painting or decorating.

* Advertising: Include desired sales volume, classified directory listing expense, etc.

* Car, Delivery and Travel: Include charges if personal car is used in the business. Include parking, tolls, mileage on buying trips, repairs, etc.

* Accounting and Legal: Outside professional services.

* Rent: List only real estate used in the business.

* Telephone.

* Utilities: Water, heat, light, etc.

* Insurance: Fire or liability on property or products, worker’s compensation.

* Taxes: Inventory, sales, excise, real estate, others.

* Interest.

* Depreciation: Amortization of capital assets.

* Other Expenses (specify each): Tools, leased equipment, etc.

* Miscellaneous (unspecified): Small expenditures without separate accounts.

Net Profit

* To find net profit, subtract total expenses from gross profit.

The Pro Forma Statement of Income, prepared on a monthly basis and culminating in an annual projection for the next business fiscal year, should be revised not less than quarterly. It must reflect the actual performance achieved in the immediately preceding three months to ensure its continuing usefulness as one of the two most valuable planning tools available to management.

Should the Pro Forma reveal that the business will likely not generate a profit from operations, plans must immediately be developed to identify what to do to at least break even--increase volume, decrease expenses, or put more owner capital in to pay some debts and reduce interest expenses.


Break-Even Analysis

'Break-Even' means a level of operations at which a business neither makes a profit nor sustains a loss. At this point, revenue is just enough to cover expenses. Break-Even Analysis enables you to study the relationship of volume, costs, and revenue.

Break-Even requires the business owner/manager to define a sales level--either in terms of revenue dollars to be earned or in units to be sold within a given accounting period--at which the business would earn a before tax net profit of zero. This may be done by employing one of various formula calculations to the business estimated sales volume, estimated fixed costs, and estimated variable costs.

Generally, the volume and cost estimates assume the following conditions:

* A change in sales volume will not affect the selling price per unit;

* Fixed expenses (rent, salaries, administrative and office expenses, interest, and depreciation) will remain the same at all volume levels; and

* Variable expenses (cost of goods sold, variable labor costs including overtime wages and sales commissions) will increase or decrease in direct proportion to any increase or decrease in sales volume.

Two methods are generally employed in Break-Even Analysis, depending on whether the break-even point is calculated in terms of sales dollar volume or in number of units that must be sold.

Break-Even Point in Sales Dollars

The steps for calculating the first method are shown below:

1. Obtain a list of expenses incurred by the company during its past fiscal year.

2. Separate the expenses listed in Step 1 into either a variable or a fixed expense classification. (See Figure 4-1, below, under 'Classification of Expenses.')

3. Express the variable expenses as a percentage of sales. In the condensed income statement (Figure 4-1) of the Small Business Specialties Co. (below), net sales were $1,200,000. In Step 2, variable expenses were found to amount to $720,000. Therefore, variable expenses are 60 percent of net sales ($720,000 divided by $1,200,000). This means that 60 cents of every sales dollar is required to cover variable expenses. Only the remainder, 40 cents of every dollar, is available for fixed expenses and profit.

4. Substitute the information gathered in the preceding steps in the following basic break-even formula to calculate the breakeven point.

Figure 4-1 --------------------------------------------------------------------------- THE SMALL-BUSINESS SPECIALTIES CO. Condensed Income Statement For year ending Dec. 31, 19-

Net sales (60,000 units @ $20 per unit)..........................$1,200,000 Less cost of goods sold: Direct material.............................$195,000 Direct labor................................ 215,000 Manufacturing expenses (Schedule A)......... 300,000 -------- Total....................................................... 710,000 ---------- Gross profit..................................................... 490,000 Less operating expenses: Selling expenses (Schedule B)...............$200,000 General and administrative expenses (Schedule C).............................. 210,000 -------- Total....................................................... 410,000 ---------- Net Income.......................................................$ 80,000 ---------- --------------------------------------------------------------------------- Supporting Schedules of Expenses Other Than Direct Material and Labor

Schedule C Schedule A Schedule B general and manufacturing selling administrative Total expenses expenses expenses

Rent.................$ 60,000 $ 30,000 $ 8,000 $ 22,000 Insurance............ 11,000 9,000 1,000 1,000 Commissions.......... 120,000 ....... 120,000 ....... Property tax......... 12,000 10,000 1,000 1,000 Telephone............ 7,000 1,000 5,000 1,000 Depreciation......... 80,000 70,000 5,000 5,000 Power................ 100,000 100,000 ....... ....... Light................ 60,000 30,000 10,000 20,000 Officers’ salaries... 260,000 50,000 50,000 160,000 -------- -------- -------- -------- Total...........$710,000 $300,000 $200,000 $210,000 -------- -------- -------- -------- --------------------------------------------------------------------------- Classification of Expenses

Total Variable Fixed

Direct material...................$ 195,000 195,000 ....... Direct labor...................... 215,000 215,000 ....... Manufacturing expenses............ 300,000 100,000 $200,000 Selling expenses.................. 200,000 50,000 General and admin. expenses....... 210,000 60,000 150,000 ---------- -------- -------- Total........................$1,120,000 $720,000 $400,000 ---------- -------- -------- ---------------------------------------------------------------------------

where: S = F + V (Sales at the break-even point) F = Fixed expenses V = Variable expenses expressed as a percentage of sales.

This formula means that when sales revenues equal the fixed expenses and variable expenses incurred in producing the sales revenues, there will be no profit or loss. At this point, revenue from sales is just sufficient to cover the fixed and the variable expenses. In this formula 'S' is the break even point.

For the Small Business Specialties Co., the break-even point (using the basic formula and data from Figure 4-2) may be calculated as follows:

S = F + V S = $400,000 + 0.605 10S = $4,000,000 + 6S 10S - 6S = $4,000,000 4S = $4,000,000 S = $1,000,000

Proof that this calculation is correct follows:

Sales at break-even point per calculation $1,000,000 Less variable expenses (60 percent of sales) 600,000 ---------- Marginal income 400,000 Less fixed expenses 400,000 ---------- Equals neither profit nor loss $ 0

Modification: Break-Even Point to Obtain Desired Net Income.

The first break-even formula can be modified to show the dollar sales required to obtain a certain amount of desired net income. To do this, let 'S' mean the sales required to obtain a certain amount of net income, say $80,000. The formula then reads:

S = F + V + Desired Net Income S = $400,000 + 0.60S + $80,000 10S = $4,000,000 + 6S + 800,000 4S = $4,800,000 S = $1,200,000

Break-Even Point in Units to be Sold

You may want to calculate the break-even point in terms of units to be sold instead of sales dollars. If so, a second formula (in which 'S' means units to be sold to break even) may be used:

Break-even Sales = Fixed expenses (S = Units) ----------------------------------------- Unit sales price - Unit variable expenses

S = $400,000 = $400,000 --------- -------- $20 - $12 $8

S = 50,000 units

The Small Business Specialties Co. must sell 50,000 units at $20 per unit to break even under the assumptions contained in this illustration. The sale of 50,000 units at $20 each equals $1 million, the break-even sales volume in dollars calculated in the basic formula. This formula indicates there is $8 per unit of sales that can be used to cover the $400,000 fixed expense. Then $400,000 divided by $8 gives the number of units required to break even.

Modification: Break-Even Point in Units to be Sold to Obtain Desired Net Income.

The second formula can be modified to show the number of units required to obtain a certain amount of net income. In this case, let S mean the number of units required to obtain a certain amount of net income, again say $80,000. The formula then reads as follows:

S = Fixed expenses + Net income ---------------------------------------- Unit sales price - Unit variable expense

S = $400,000 + $80,000 = $480,000 ------------------ -------- $20 - $12 $8

S = 60,000 units

Break-even Analysis may also be represented graphically by charting the sales dollars or sales units required to break even as in Figure 4-2, below.

Remember: Increased sales do not necessarily mean increased profits. If you know your company’s break-even point, you will know how to price your product to make a profit. If you cannot make an acceptable profit, alter or sell your business before you lose your retained earnings.


Figure 4-2 +---------------------------------------------------_Revenue (Sales) ฆ _ ฆ ฆ _ ฆ + _ ฆ Total ฆ _ ฆ Costs ฆ Potential Profit-----_---X _ ----- + _ _ ฆ _ ฆ _ _ ฆ ฆ ฆ _ _ ฆ ฆ + _ _ ฆ Variable ฆ _ _ ฆ Costs & ฆ _ _ ฆ Expenses + _ _ ฆ ฆ ฆ-- -- -- -- -- -- -_Break-Even Profit ฆ ฆ ฆ _ ฆ ฆ + _ _ ฆ ฆ ฆ ฆ _ _ ฆ ฆ ฆ _ Loss _ ฆ Fixed Cost Line ฆ _------_--------------------------------------------ฆ ----- ฆ _ ฆ ฆ Fixed ฆ Costs Sales Volume

V. Cash Flow Management: Budgeting and Controlling Costs

If there is anything more important to the successful financial management of a business than the thorough, thoughtful preparation of Pro Forma Income Statements, it is the preparation of the Cash Flow Statement, sometimes called the Cash Flow Budget.

The Cash Flow Statement

The Cash Flow Statement identifies when cash is expected to be received and when it must be spent to pay bills and debts. It shows how much cash will be needed to pay expenses and when it will be needed. It also allows the manager to identify where the necessary cash will come from. For example, will it be internally generated from sales and the collection of accounts receivable--or must it be borrowed? (The Cash Flow Projection deals only with actual cash transactions; depreciation and amortization of good will or other non-cash expense items are not considered in this Pro Forma.)

The Cash Flow Statement, based on management estimates of sales and obligations, identifies when money will be flowing into and out of the business. It enables management to plan for shortfalls in cash resources so short term working capital loans may be arranged in advance. It allows management to schedule purchases and payments in a way that enables the business to borrow as little as possible. Because all sales are not cash sales management must be able to forecast when accounts receivable will become 'cash in the bank' and when expenses--whether regular or seasonal--must be paid so cash shortfalls will not interrupt normal business operations.

The Cash Flow Statement may also be used as a Budget, permitting the manager increased control of the business through continuous comparison of actual receipts and disbursements against forecast amounts. This comparison helps the small business owner identify areas for timely improvement in financial management.

By closely watching the timing of cash receipts and disbursements, cash balance on hand, and loan balances, management can readily identify such things as deficiencies in collecting receivables, unrealistic trade credit or loan repayment schedules. Surplus cash that may be invested on a short-term basis or used to reduce debt and interest expenses temporarily can be recognized. In short, it is the most valuable tool management has at its disposal to refine the day-to-day operation of a business. It is an important financial tool bank lenders evaluate when a business needs a loan, for it demonstrates not only how large a loan is required but also when and how it can be repaid.

A Cash Flow Statement or Budget can be prepared for any period of time. However, a one-year budget matching the fiscal year of your business is recommended. As in the preparation and use of the Pro Forma Statement of Income, the projected Cash Flow Statement should be prepared on a monthly basis for the next year. It should be revised not less than quarterly to reflect actual performance in the preceding three months of operations to check its projections.

In preparing the Cash Flow Statement or Budget start with the sales budget. Other budgets are related directly or indirectly to this budget. The following is a sales forecast in units:

Sales Budget--Units For the Year Ended December 31, 19__

Territory Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter East....................26,000 5,000 6,000 7,000 8,000 West....................11,000 2,000 2,500 3,000 3,500 ------ ----- ----- ------ ------ 37,000 7,000 8,500 10,000 11,500 ------ ----- ----- ------ ------

Assume you sell a single product and the sales price for it is $10. Your sales budget in terms of dollars would look like this:

Sales Budget--Dollars For the Year Ended December 31, 19__

Territory Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter East......................$260,000 $50,000 $80,000 $ 70,000 $ 80,000 West...................... 110,000 20,000 25,000 30,000 35,000 -------- ------- ------- -------- -------- $370,000 $70,000 $85,000 $100,000 $115,000 -------- ------- ------- -------- --------

Say the estimated per unit cost of the product is $1.50 for direct material, $2.50 for direct labor, and $1.00 for manufacturing overhead. By applying unit costs to the sales budget in units, you would come out with this budget:

Cost of Goods Sold Budget For the Year Ended December 31, 19__

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Direct material......$ 55,500 $10,500 $12,750 $15,000 $17,250 Direct labor......... 92,500 17,500 21,250 25,000 28,750 Mfg. overhead........ 37,000 7,000 8,500 10,000 11,500 -------- ------- ------- ------- ------- $185,000 $35,000 $42,500 $50,000 $57,500 -------- ------- ------- ------- -------

Later on, before a cash budget can be compiled, you will need to know the estimated cash requirements for selling expenses. Therefore, you prepare a budget for selling expenses and another for cash expenditures for selling expenses (total selling expenses less depreciation):

Selling Expenses Budget For the Year Ended December 31 19__

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Commissions.............$46,500 $ 8,750 $10,625 $12,500 $14,375 Rent.................... 9,250 1,750 2,125 2,500 2,875 Advertising............. 9,250 1,750 2,125 2,500 2,875 Telephone............... 4,625 875 1,062 1,250 1,437 Depreciation--office.... 900 225 225 225 225 Other................... 22,250 4,150 5,088 6,025 6,983 ------- ------- ------- ------- ------- $92,500 $17,500 $21,250 $25,000 $28,750 ------- ------- ------- ------- -------

Selling Expenses Budget--Cash Requirements For the Year Ended December 31, 19__

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total selling expenses..$92,500 $17,500 $21,250 $25,000 $28,750 Less: depreciation...... expense--office......... 900 225 225 225 225 ------- ------- ------- ------- ------- Cash requirements.......$91,600 $17,275 $21,025 $24,775 $28,525 ------- ------- ------- ------- -------

Basic information for an estimate of administrative expenses for the coming year is easily compiled. Again, from that budget you can estimate cash requirements for those expenses to be used subsequently in preparing the cash budget.

Administrative Expenses Budget For the Year Ended December 31, 19___

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Salaries.................$22,200 $4,200 $5,100 $ 6,000 $ 6,900 Insurance................ 1,850 350 425 500 575 Telephone................ 1,850 350 425 500 575 Supplies................. 3,700 700 850 1,000 1,150 Bad debt expenses........ 3,700 700 850 1,000 1,150 Other expenses........... 3,700 700 850 1,000 1,150 ------- ------ ------ ------- ------- $37,000 $7,000 $8,500 $10,000 $11,500 ------- ------ ------ ------- -------

Administrative Expenses Budget--Cash Requirements For the Year Ended December 31, 19___

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Estimated adm. expenses...$37,000 $7,000 $8,500 $10,000 $11,500 Less: bad debt expenses... 3,700 700 850 1,000 1,150 ------- ------ ------ ------- ------- Cash requirements.........$33.300 $6,500 $7,650 $ 9,000 $10,350 ------- ------ ------ ------- -------

Now, from the information budgeted so far, you can proceed to prepare the budget income statement. Assume you plan to borrow $10,000 at the end of the first quarter. Although payable at maturity of the note, the interest appears in the last three quarters of the year. The statement will resemble the following:

Budgeted Income Statement For the Year Ended December 31, 19___

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Sales...................$370,000 $70,000 $85,000 $100,000 $115,000 Cost of goods sold...... 185,000 35,000 42,500 50,000 57,500 -------- ------- ------- -------- -------- Gross Margin............$185,000 $35,000 $42,500 $ 50,000 $ 57,500 -------- ------- ------- -------- -------- Operating expenses: Selling................$ 92,500 $17,500 $21,250 $ 25,000 $ 28,750 Administrative......... 37,000 7,000 8,500 $ 10,000 $ 11,500 -------- ------- ------- -------- -------- Total................$129,500 $24,500 $29,750 $ 35,000 $ 40,250 -------- ------- ------- -------- -------- Net income from operations........$ 55,500 $10,500 $12,750 $ 15,000 $ 17,250 Interest expense....... 450 150 150 150 -------- ------- ------- -------- -------- Net income before Income taxes...........$ 55,050 $10,500 $12,600 $ 14,850 $ 17,100 Federal income tax..... 27,525 5,250 6,300 7,425 8,550 -------- ------- ------- -------- -------- Net income..............$ 27,525 $ 5,250 $ 6,300 $ 7,425 $ 8,550 -------- ------- ------- -------- --------

Estimating that 90 percent of your account sales is collected in the quarter in which they are made, that 9 percent is collected in the quarter following the quarter in which the sales were made, and that 1 percent of account sales is uncollectible, your accounts receivable budget of collections would look like this:

Budget of Collections of Accounts Receivable For the Year Ended December 31, 19___

Total 1st 2nd 3rd 4th (net) Quarter Quarter Quarter Quarter 4th Quarter Sales 19-0...$ 6,000 $ 6,000 1st Quarter Sales 19-1... 69,300 63,000 $ 6,300 2nd Quarter Sales 19-1... 84,150 76,500 $ 7,650 3rd Quarter Sales 19-1... 99,000 90,000 $ 9,000 4th Quarter Sales 19-1... 103,500 103,500 -------- ------- ------- ------- -------- $361,950 $69,000 $82,800 $97,650 $112,500

Going back to the sales budget in units, now prepare a production budget in units. Assume you have 2,000 units in the opening inventory and want to have on hand at the end of each quarter the following quantities: 1st quarter, 3,000 units; 2nd quarter, 3,500 units; 3rd quarter, 4,000 units; and 4th quarter, 4,500 units.

Production Budget--Units For the Year Ended December 31, 19___

1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Sales requirements........... 7,000 8,500 10,000 11,500 Add: ending inventory requirements...... 3,000 3,500 4,000 4,500 ------ ------ ------ ------- Total requirements..........10,000 12,500 14,000 16,000 Less: beginning inventory................... 2,000 3,000 3,500 4,000 Production ------ ------ ------ ------- requirements............... 8,000 9,000 10,500 112,000 ------ ------ ------ -------

Next, based on the production budget, prepare a budget to show the purchases needed during each of the four quarters. Expressed in terms of dollars, you do this by taking the production and inventory fires and multiplying them by the cost of material (previously estimated at $1.50 per unit). You could prepare a similar budget expressed in units.

Budget of Direct Materials Purchases For the Year Ended December 31, 19___

1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Required for production........$12,000 $13,500 $15,750 $18,000 Required for ending inventory.. 4,500 52,250 6,000 6,750 ------- ------- ------- ------- Total........................$16,500 $18,750 $21,750 $24,750 Less: beginning inventory...... 3,000 4,500 5,250 6,000 ------- ------- ------- ------- Required purchases.............$13,500 $14,250 $16,500 $18,750 ------- ------- ------- -------

Now suppose you pay 50 percent of your accounts in the quarter of the purchase and 50 percent in the following quarter. Carryover payables from last year were $5,000. Further, you always take the purchase discounts as a matter of good business policy. Since net purchases (less discount) were figured into the $1.50 cost estimate, purchase discounts do not appear in the budgets. Thus your payment on purchases budget will come out like this:

Payment on Purchases Budget For the Year Ended December 31, 19___

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter 4th Quarter Sales 19-0...$ 5,000 $ 5,000 1st Quarter Sales 19-1... 13,500 6,750 $ 6,750 2nd Quarter Sales 19-1... 14,250 7,125 $ 7.125 3rd Quarter Sales 19-1... 16,500 8,250 $ 8,250 4th Quarter Sales 19-1... 9,375 9,375 ------- ------- Payments by Quarters $58,625 $11,750 $13,875 $15,375 $17,625 ------- ------- ------- ------- -------

Taking the data for quantities produced from the production budget in units, calculate the direct labor requirements on the basis of units to be produced. (The number and cost of labor hours necessary to produce a given quantity can be set forth in supplemental schedules.)

Direct Labor Budget--Cash Requirements For the Year Ended December 31, 19__

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Quantity................ 39,500 8,000 9,000 10,500 12,000 Direct labor cost.......$98,750 $20,000 $22,500 $26,250 $30,000

Now outline the items that comprise your factory overhead, and prepare a budget like the following:

Manufacturing Overhead Budget For the Year Ended December 31, 19___

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Heat and power..........$10,000 $1,000 $2,500 $ 3,000 $ 3,500 Factory supplies........ 5,300 1,000 1,500 1,800 1,000 Property taxes.......... 2,000 500 500 500 500 Depreciation............ 2,800 700 700 700 700 Rent.................... 8,000 2,000 2,000 2,000 2,000 Superintendent.......... 9,400 2,800 1,800 2,500 4,300 ------- ------ ------ ------- ------- $39,500 $8,000 $9,000 $10.500 $12,000 ------- ------ ------ ------- -------

Figure the cash payments for manufacturing overhead by subtracting depreciation, which requires no cash outlay, from the totals above, and you will have the following breakdown:

Manufacturing Overhead Budget--Cash Requirements For the Year Ended December 31, 19___

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Productions--units...... 39,500 8,000 9,000 10,500 12,000 ------- ------ ------ ------- ------- Mfg.overhead expenses...$39,500 $8,000 $9,000 $10,500 $12,000 Less: depreciation...... 2,800 700 700 700 700 ------- ------ ------ ------- ------- Cash requirements.......$36,700 $7,300 $8,300 $ 9,800 $11,300 ------- ------ ------ ------- -------

Now comes the all important cash budget. You put it together by using the Collection of Accounts Receivable Budget; Selling Expenses Budget--Cash Requirements; Administrative Expenses Budget--Cash Requirements; Payment of Purchases Budget; Direct Labor Budget--Cash Requirements; and Manufacturing Budget--Cash Requirements.

Take $15,000 as the beginning balance, and assume that dividends of $20,000 are to be paid in the fourth quarter.

Cash Budget For the Year Ended December 31, 19___

Total 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Beginning cash balance $ 15,000 $15,000 $ 3,850 $ 13,300 $ 25,750 Cash collections 361,950 69,000 82,800 97,650 112,500 -------- ------- ------- -------- -------- Total $376,950 $84,000 $86,650 $110,950 $138,250 -------- ------- ------- -------- -------- Cash payments Purchases $ 58,625 $11,750 $13,875 $ 15,375 $ 17,625 Direct labor 98,750 20,000 22,500 26,250 30,000 Mfg. overhead 38,700 7,300 8,300 9,800 11,300 Selling expense 91,600 17,275 21,025 24,775 28,525 Adm. expenses 33,300 6,300 7,650 9,000 10,350 Federal income tax 27,525 27,525 Dividends 20,000 20,000 Interest expenses 450 450 Loan repayment 10,000 10,000 -------- ------- ------- ------- -------- Total $376,950 $90,150 $73,350 $ 85,200 $128,250 -------- ------- ------- ------- -------- Cash deficiency ($ 6,150) Bad loan received 10,000 10,000 -------- ------- Ending cash balance $ 10,000 $ 3,850 $13,300 $ 25,750 $ 10,000 -------- ------- ------- ------- --------

Now you are ready to prepare a budget balance sheet. Take the account balances of last year and combine them with the transactions reflected in the various budgets you have compiled. You will come out with a sheet resembling this:

Budgeted Balance Sheet December 31, 19___ Assets 19___ 19___ Current assets: Cash $ 10,000 $ 15,000 Accounts receivable 11,500 6,666 Less: allowance for doubtful accounts (1,150) (666) Inventory: Raw materials 6,750 3,000 Finished goods 22,500 10,000 -------- -------- Total current assets $ 49,600 34,000 -------- -------- Fixed assets: Land $ 50,000 $ 50,000 Building 148,000 148,000 Less: allowance for depreciation (37,000) (33,000) -------- -------- Total fixed assets $161,100 $164,700 -------- -------- Total assets $210,600 $198,700 -------- -------- Liabilities and Shareholders’ Equity

Current liabilities: Account payable $ 9,375 $ 5,000 -------- -------- Shareholders’ equity: Capital stock (10,000 shares; $10 par value) $100,000 $110,000 Retained earnings 101,225 93,700 -------- -------- $201,225 $193,700 -------- -------- Total liabilities and shareholders’ equity $210,600 $198,700 -------- --------

In order to make the most effective use of your budgets to plan profits, you will want to establish reporting devices. Throughout the time span you have set, you need periodic reports and reviews on both efforts and accomplishments. These let you know whether your budget plan is being attained and help you keep control throughout the process. It is through comparing actual performance with budgeted projections that you maintain control of the operations.

Your company should be structured along functional lines, with well identified areas of responsibility and authority. Then, depending upon the size of your company, the budget reports can be prepared to correspond with the organizational structure of the company.

Two typical budget reports are shown below to demonstrate various forms these reports may take.

Report of Actual and Budgeted Sales For the Year Ended December 31, 19___

Variations from budget (under) Actual sales Budgeted sales Quarterly Cumulative 1st Quarter $ $ $ $ 2nd Quarter 3rd Quarter 4th Quarter

Budgeted Report on Selling Expenses For the Year Ended December 31, 19___ --------------------------------------------------------------------------- Budget ฆ Actual ฆ Variationฆ Budget ฆ Actual ฆVariationsฆ Remarks This ฆ This ฆ This ฆ Year to ฆ Year to ฆ Year to ฆ Month ฆ Month ฆ Month ฆ Date ฆ Date ฆ Date ฆ ----------+-----------+----------+----------+----------+----------+-------- ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ ฆ

Remember, the Cash Flow Statement used as the business’s Budget allows the owner/manager to anticipate problems rather than react to them after they occur. It permits comparison of actual receipts and disbursements against projections to identify errors in the forecast. If cash flow is analyzed monthly, the manager can correct the cause of the error before it harms profitability.

VI. Pricing Policy

Identifying the actual cost of doing business requires careful and accurate analysis. No one is expected to calculate the cost of doing business with complete accuracy. However, failure to calculate all actual costs properly to ensure an adequate profit margin is a frequent and often overlooked cause of business failure.

Establishing Selling Prices

The costs of raw materials, labor, indirect overhead, and research and development must be carefully studied before setting the selling price of items offered by your business. These factors must be regularly re-evaluated, as costs fluctuate.

Regardless of the strategies employed to maximize profitability, the method of costing products offered for resale is basic. It involves four major categories:

* Direct Material Costs * Direct Labor Costs * Overhead Expenses * Profit Desired

Combining these factors allows you to calculate an item’s minimum sales price, which is described below:

1. Calculate your Direct Material Costs. Direct material costs are the total cost of all raw materials used to produce the item for sale. Divide this total cost by the number of items produced from these raw materials to derive the Total Direct Materials Cost Per Item.

2. Calculate your Direct Labor Costs. Direct labor costs are the wages paid to employees to produce the item. Divide this total direct labor cost by the total number of items produced to get the Total Direct Labor Cost Per Item.

3. Calculate your Total Overhead Expenses. Overhead expenses include rent, gas and electricity, telephone, packing and shipping, delivery and freight charges, cleaning expenses, insurance, office supplies, postage, repairs and maintenance, and the manager’s salary. In other words, all operating expenses incurred during the same time period that you used for calculating the costs above (one year, one quarter, or one month). Divide the Total Overhead Expense by the number of items produced for sale during that same time period to get the Total Overhead Expense Per Item.

4. Calculate Total Cost Per Item. Add the Total Direct Material Cost Per Item, the Total Direct Labor Cost Per Item, and the Total Overhead Expense Per Item to derive the Total Cost Per Item.

5. Calculate the Profit Per Item. Now, calculate the profit you determine appropriate for each category of item offered for sale based on the sales and profit strategy you have set for your business.

6. Calculate the Total Price Per Item. Add the Profit Figure Per Item to the Total Cost Per Item.

A Pricing Example

You produce skirts that take 1 1/2 yards of fabric per skirt, and you can manufacture three skirts per day. The fabric costs $2.00 per yard. The normal work week is five days. If you complete three skirts per day, your week’s production is 15 skirts.

1. Calculate Direct Materials Cost

Materials Cost

Fabric for 1 week’s production: 15 skirts x 1 1/2 yds. each = 22 1/2 yds. x $2 per yd. $45.00

Linings, interfacings, etc.: $.50 per skirt x 15 skirts 7.50

Zippers, buttons, snaps: $.50 per skirt x 15 skirts 7.50

Belts, ornaments, etc.: $.75 per skirt x 15 skirts 11.25

Notions, seam binding, etc.: 1 week’s supply 5.00 ------ Total Direct Materials Cost: $76.25 per week

Total Direct Materials Cost per week = $5.08 Direct Materials ------------------------------------ Cost per skirt 15 skirts per week

2. Calculate Direct Labor Costs

Wages paid to employees = $100.00 per week

Total Direct Labor Cost per week = $6.67 Direct Labor Cost -------------------------------- per skirt 15 skirts

3. Calculate Overhead Expenses Per Month

Overhead Expenses Monthly Expenses Owner’s Salary $400.00 Rent 100.00 Electricity 24.00 Telephone 12.00 Insurance 15.00 Cleaning 20.00 Packing Materials and Supplies 15.00 Delivery and Freight 20.00 Office Supplies, Postage 10.00 Repairs and Maintenance 15.00 Payroll Taxes 5.00 ------- Total Monthly Overhead Expenses: $636.00

15 skirts per week x 4 weeks in one month = 60 skirts per month.

Total Monthly Overhead Expenses = $10.60 Overhead Cost ------------------------------- per skirt 60 skirts per month

4. Calculate the Total Cost per Skirt by adding the total individual costs per skirt calculated in the three preceding steps.

Total Direct Material Cost per Skirt $ 5.08 Total Direct Labor Cost per Skirt 6.67 Total Overhead Expense per Skirt 10.60 ------ TOTAL COST PER SKIRT $22.35

5. Assume you want to make a profit of $5.00 per skirt.

6. Calculate the Total Price Per Item:

Total Cost per Skirt $22.35 Total Profit per Skirt 5.00 ------ Total Selling Price Per Skirt $27.35

The Retailer’s Mark-Up

A word of caution is in order regarding the popular but misunderstood pricing method known as retailers mark-up. Retail mark-up means the amount added to the price of an item to arrive at the retail sales price, either in dollars or as a percentage of the cost.

For example, if a single item costing $8.00 is sold for $12.00 it carries a mark-up of $4.00 or 50 percent. If a group of items costing $6,000 is offered for $10,000, the mark-up is $4,000 or 66 2/3 percent. While in these illustrations the mark-up percentage appears generally to equal the gross margin percentages, the mark-up is not the same as the gross margin. Adding mark-up to the price merely to simplify pricing will almost always adversely affect profitability.

To demonstrate, assume a manager determines from past records that the business’s operating expenses average 29 percent of sales. She decides that she is entitled to a profit of 3 percent. So she prices her goods at a 32 percent gross margin, in order to earn a 3 percent profit after all operating expenses are paid. What she fails to realize, however, is that once the goods are displayed, some may be lost through pilferage. Others may have to be marked down later in order to sell them, or employees may purchase some of them at a discount. Therefore, the total reductions (mark-downs, shortages, discounts) in the sales price realized from selling all the inventory actually add up to an annual average of six percent of total sales. To correctly calculate the necessary mark-up required to yield a 32 percent gross margin, these reductions to inventory must be anticipated and added into its selling price. Using the formula:

Initial Mark-up = Desired Gross Margin + Retail Reductions ---------------------------------------- 100 Percent + Retail Reductions

32 percent + 6 percent = 38 percent = 35.85 percent ----------------------- ----------- 100 percent + 6 percent 106 percent

To obtain the desired gross margin of 32 percent, therefore, the retailer must initially mark up his inventory by nearly 36 percent.

Pricing Policies and Profitability Goals

Break-Even Analysis, discussed in Chapter IV, and Return on Investment, described in Chapter III, should be reviewed at this time. Remember, all costs (direct and indirect), the break-even point, desired profit, and the methods of calculating sales price from these factors must be thoroughly studied when you establish pricing policies and profitability goals. They should be understood before you offer items for sale because an omission or error in these calculations could make the difference between success and failure.

Selling Strategy

Proper product pricing is only one facet of overall planning for profitability. A second major factor to be determined once costs, break-even point, and profitability goals have been analyzed, is the selling strategy. Three sales planning approaches are used (often concurrently) by businesses to develop final pricing policies, as they strive to compete successfully.

In the first, employed as a short-term strategy in the earliest stages of a business, the owner/manager sells products at such low prices that the business only breaks even (no profit), while trying to attract future steady customers. As volume grows, the owner/manager gradually builds in the profit margin necessary to achieve the targeted Return on Investment.

'Loss leaders' are a second strategy practiced in both developing and mature business. While a few items are sold at a loss, most goods are priced for healthy profits. The hope is that while customers are in the store to purchase the low-price items, they will also buy enough other goods to make the seller’s overall profitability higher than if he had not used 'come-ons.' The seller wants to maximize total profit and can sacrifice profit on a few items to achieve that goal.

The third strategy recognizes that maximum profit does not result only from selling goods at relatively high profit margins. The relationship of volume, price, cost of merchandise, and operational expenses determines profitability. Price increases may result in fewer sales and decreased profits. Reductions in prices, if sales volume is substantially increased, may produce satisfactory profits.

There is no arbitrary rule about this. It is perfectly possible for two stores, with different pricing structures to exist side by side and both be successful. It is the owner/manager’s responsibility to identify and understand the market factors that affect his or her unique business circumstances. The level of service (delivery, availability of credit, store hours, product advice, and the like) may permit a business to charge higher prices in order to cover the costs of such services. Location, too, often permits a business to charge more, since customers are often willing to pay a premium for convenience.

The point is that many considerations go into setting selling prices. Some small businesses do not seek to compete on price at all, finding an un- or under-occupied market niche, which can be a more certain path to success. What is important is that all factors that affect pricing must be recognized and analyzed for their costs as well as their benefits.

VII. Forecasting and Obtaining Capital

Forecasting the need for capital, whether debt or equity, has already been discussed in Chapter V. This chapter looks at the types and uses of external capital and the usual sources of such capital.

Types and Sources of Capital

The capital to finance a business has two major forms: debt and equity. Creditor money (debt) comes from trade credit, loans made by financial institutions, leasing companies, and customers who have made prepayments on larger--frequently manufactured--orders. Equity is money received by the company in exchange for some portion of ownership. Sources include the entrepreneur’s own money; money from family, friends, or other non-professional investors; or money from venture capitalists, Small Business Investment Companies (SBICs), and Minority Enterprise Small Business Investment Companies (MESBICs) both funded by the SBA.

Debt capital, depending upon its sources (e.g., trade, bank, leasing company, mortgage company) comes into the business for short or intermediate periods. Owner or equity capital remains in the company for the life of the business (unless replaced by other equity) and is repaid only when and if there is a surplus at liquidation of the business--after all creditors are repaid.

Acquiring such funds depends entirely on the business’s ability to repay with interest (debt) or appreciation (equity). Financial performance (reflected in the Financial Statements discussed in Chapter II) and realistic, thorough management planning and control (shown by Pro Formas and Cash Flow Budgets), are the determining factors in whether or not a business can attract the debt and equity funding it needs to operate and expand.

Business capital can be further classified as equity capital, working capital, and growth capital. Equity capital is the cornerstone of the financial structure of any company. As you will recall from Chapter II, equity is technically the part of the Balance Sheet reflecting the ownership of the company. It represents the total value of the business, all other financing being debt that must be repaid. Usually, you cannot get equity capital--at least not during the early stages of business growth.

Working capital is required to meet the continuing operational needs of the business, such as 'carrying' accounts receivable purchasing inventory, and meeting the payroll. In most businesses, these needs vary during the year, depending on activities (inventory build-up, seasonal hiring or layoffs, etc.) during the business cycle.

Growth capital is not directly related to cyclical aspects of the business. Growth capital is required when the business is expanding or being altered in some significant and costly way that is expected to result in higher and increased cash flow. Lenders of growth capital frequently depend on anticipated increased profit for repayment over an extended period of time, rather than expecting to be repaid from seasonal increases in liquidity as is the case of working capital lenders.

Every growing business needs all three types: equity, working, and growth capital. You should not expect a single financing program maintained for a short period of time to eliminate future needs for additional capital.

As lenders and investors analyze the requirements of your business, they will distinguish between the three types of capital in the following way: 1) fluctuating needs (working capital); 2) needs to be repaid with profits over a period of a few years (growth capital); and 3) permanent needs (equity capital).

If you are asking for a working capital loan, you will be expected to show how the loan can be repaid through cash (liquidity) during the business’s next full operating cycle, generally a one year cycle. If you seek growth capital, you will be expected to show how the capital will be used to increase your business enough to be able to repay the loan within several years (usually not more than seven). If you seek equity capital, it must be raised from investors who will take the risk for dividend returns or capital gains, or a specific share of the business.

Borrowing Working Capital

Chapter II defined working capital as the difference between current assets and current liabilities. To the extent that a business does not generate enough money to pay trade debt as it comes due, this cash must be borrowed.

Commercial banks obviously are the largest source of such loans, which have the following characteristics: 1) The loans are short-term but renewable; 2) they may fluctuate according to seasonal needs or follow a fixed schedule of repayment (amortization); 3) they require periodic full repayment ('clean up'); 4) they are granted primarily only when the ratio of net current assets comfortably exceeds net current liabilities; and 5) they are sometimes unsecured but more often secured by current assets (e.g., accounts receivable and inventory). Advances can usually be obtained for as much as 70 to 80 percent of quality (likely to be paid) receivables and to 40 to 50 percent of inventory. Banks grant unsecured credit only when they feel the general liquidity and overall financial strength of a business provide assurance for repayment of the loan.

You may be able to predict a specific interval, say three to five months, for which you need financing. A bank may then agree to issue credit for a specific term. Most likely, you will need working capital to finance outflow peaks in your business cycle. Working capital then supplements equity. Most working capital credits are established on a one-year basis.

Although most unsecured loans fall into the one-year line of credit category, another frequently used type, the amortizing loan, calls for a fixed program of reduction, usually on a monthly or quarterly basis. For such loans your bank is likely to agree to terms longer than a year, as long as you continue to meet the principal reduction schedule.

It is important to note that while a loan from a bank for working capital can be negotiated only for a relatively short term, satisfactory performance can allow the arrangement to be continued indefinitely.

Most banks will expect you to pay off your loans once a year (particularly if they are unsecured) in perhaps 30 or 60 days. This is known as 'the annual clean up,' and it should occur when the business has the greatest liquidity. This debt reduction normally follows a seasonal sales peak when inventories have been reduced and most receivables have been collected.

You may discover that it becomes progressively more difficult to repay debt or 'clean up' within the specified time. This difficulty usually occurs because: 1) Your business is growing and its current activity represents a considerable increase over the corresponding period of the previous year; 2) you have increased your short-term capital requirement because of new promotional programs or additional operations; or 3) you are experiencing a temporary reduction in profitability and cash flow.

Frequently, such a condition justifies obtaining both working capital and amortizing loans. For example, you might try to arrange a combination of a $15,000 open line of credit to handle peak financial requirements during the business cycle and $20,000 in amortizing loans to be repaid at, say $4,000 per quarter. In appraising such a request, a commercial bank will insist on justification based on past experience and future projections. The bank will want to know: How the $15,000 line of credit will be self-liquidating during the year (with ample room for the annual clean up); and how your business will produce increased profits and resulting cash flow to meet the schedule of amortization on the $20,000 portion in spite of increasing your business’s interest expense.

Borrowing Growth Capital

Lenders expect working capital loans to be repaid through cash generated in the short-term operations of the business, such as, selling goods or services and collecting receivables. Liquidity rather than overall profitability supports such borrowing programs. Growth capital loans are usually scheduled to be repaid over longer periods with profits from business activities extending several years into the future. Growth capital loans are, therefore secured by collateral such as machinery and equipment, fixed assets which guarantee that lenders will recover their money should the business be unable to make repayment.

For a growth capital loan you will need to demonstrate that the growth capital will be used to increase your cash flow through increased sales, cost savings, and/or more efficient production. Although your building, equipment, or machinery will probably be your collateral for growth capital funds, you will also be able to use them for general business purposes, so long as the activity you use them for promises success. Even if you borrow only to acquire a single piece of new equipment, the lender is likely to insist that all your machinery and equipment be pledged.

Instead of bank financing a particular piece of new equipment, it may be possible to arrange a lease. You will not actually own the equipment, but you will have exclusive use of it over a specified period. Such an arrangement usually has tax advantages. It lets you use funds that would be tied up in the equipment, if you had purchased it. It also affords the opportunity to make sure the equipment meets your needs before you purchase it.

Major equipment may also be purchased on a time payment plan, sometimes called a Conditional Sales Purchase. Ownership of the property is retained by the seller until the buyer has made all the payments required by the contract. (Remember, however, that time payment purchases usually require substantial down payments and even leases require cash advances for several months of lease payments.)

Long-term growth capital loans for more than five but less than fifteen years are also obtainable. Real estate financing with repayment over many years on an established schedule is the best example. The loan is secured by the land and/or buildings the money was used to buy. Most businesses are best financed by a combination of these various credit arrangements.

When you go to a bank to request a loan, you must be prepared to present your company’s case persuasively. You should bring your financial plan consisting of a Cash Budget for the next twelve months, Pro Forma Balance Sheets, and Income Statements for the next three to five years. You should be able to explain and amplify these statements and the underlying assumptions on which the figures are based. Obviously, your assumptions must be convincing and your projections supportable. Finally, many banks prefer statements audited by an outside accountant with the accountant’s signed opinion that the statements were prepared in accordance with generally accepted accounting principles and that they fairly present the financial condition of your business.

If borrowing growth capital is necessary and no private conventional source can be found, the U.S. Small Business Administration (SBA) may be able to guarantee up to 90 percent of a local bank loan. By law, SBA cannot consider a loan application without evidence that the loan could not be obtained elsewhere on reasonable terms without SBA assistance. Even for such guaranteed loans, however, the borrower must demonstrate the ability to repay.

Borrowing Permanent Equity Capital

Permanent capital sometimes comes from sources other than the business owner/manager. Considered ownership contributions, they are different from 'stockholders equity' in the traditional sense of the phrase. Small Business Investment Companies (SBIC’s) licensed and financed by the Small Business Administration are authorized to provide venture capital to small business concerns. This capital may be in the form of secured and/or unsecured loans or debt securities represented by common and preferred stock.

Venture capital, another source of equity capital, is extremely difficult to define; however, it is high risk capital offered with the principal objective of earning capital gains for the investor. While venture capitalists are usually prepared to wait longer than the average investor for a profitable return, they usually expect in excess of 15 percent return on their investment. Often they expect to take an active part in determining the objectives of the business. These investors may also assist the small business owner/manager by providing experienced guidance in marketing, product ideas, and additional financing alternatives as the business develops. Even though turning to venture capital may create more bosses, their advice could be as valuable as the money they lend. Be aware, however, that venture capitalists are looking for businesses with real potential for growth and for future sales in the millions of dollars.

Figure 7-1 Financing Sources for Your Business

Equity (Sell part of company) * Family, friends, and other non-professional investors * Venture Capitalists * Small Business Investment Companies (SBICs and MESBICs)

Personal Loans * Banks - Unsecured loans (rare) - Loans secured by: Real Estate Stocks and Bonds * Finance Companies - Loans secured by: Real Estate Personal Assets * Credit Unions - Unsecured 'signature' loans - Loans secured by: Real Estate (some credit unions) Personal Assets * Savings and Loan Associations - Unsecured loans (rare) - Loans secured by Real Estate * Mortgage Brokers and Private Investors - Loans secured by Real Estate * Life Insurance Companies - Policy loans (borrow against cash value)

Business Loans

Loans

* Banks (short-term) - Unsecured loans (for established, financially sound companies only) - Loans secured by: Accounts Receivable Inventory Equipment * Banks (long-term) - Loans secured by: Real Estate - Loans guaranteed by: Small Business Administration (SBA) Farmers Home Administration (FmHA) * Commercial Finance Companies - Loans secured by: Real Estate Equipment Inventory Accounts Receivable * Life Insurance Companies - Loans secured by commercial Real Estate (worth at least $150,000) * Small Business Administration (SBA) - Loans secured by: All available business assets All available personal assets * Suppliers - Trade Credit * Customers - Prepayment on orders

Leasing

* Banks * Leasing Companies - Loans secured by: Equipment Sales of Receivables (called 'factoring')

(Source: The Business Store, Santa Rosa, California.)

Applying for Capital

Below is the minimum information you must make available to lenders and investors:

1. Discussion of the Business * Name, address, and telephone number. * Type of business you are in now or want to expand or start.

2. Amount of Money You Need to Borrow * Ask for all you will need. Don’t ask for a part of the total and think you can come back for more later. This could indicate to the lender that you are a poor planner.

3. How You Will Use the Money * List each way the borrowed money will be used. * Itemize the amount of money required for each purpose.

4. Proposed Terms of the Loan * Include a payback schedule. Even though the lender has the final say in setting the terms of the loan, if you suggest terms, you will retain a negotiating position.

5. Financial Support Documents

* Show where the money will come from to repay the loan through the following projected statements: - Profit and Loss Statements (one year for working capital loan requests and three to five years for growth capital requests) - Cash Flow Statements (one year for working capital loan requests and three to five years for growth capital requests)

6. Financial History of the Business * Include the following financial statements for the last three years: - Balance Sheet - Profit and Loss Statement - Accounts Receivable and Accounts Payable Listings and Agings

7. Personal Financial Statement of the Owner(s) * Personal Assets and Liabilities * Resume(s)

8. Other Useful information Includes * Letters of Intent from Prospective Customers * Leases or Buy/Sell Agreements Affecting Your Business * Reference Letters

Although it is not required, it is useful to calculate the ratios described in Chapter III for your business over the past three years. Use this information to prove the strong financial health and good trends in your business’s development and to demonstrate that you use such management tools to plan and control your business’s growth.

VIII. Financial Management Planning

Studies overwhelmingly identify bad management as the leading cause of business failure. Bad management translates to poor planning by management.

All too often, the owner is so caught up in the day-to-day tasks of getting the product out the door and struggling to collect receivables to meet the payroll that he or she does not plan. There never seems to be time to prepare Pro Formas or Budgets. Often new managers understand their products but not the financial statements or the bookkeeping records, which they feel are for the benefit of the IRS or the bank. Such overburdened owner/managers can scarcely identify what will affect their businesses next week, let alone over the coming months and years. But, you may ask, 'What should I do? How can I, as a small business owner/manager, avoid getting bogged down? How can I ensure success?'

Success may be ensured only by focusing on all factors affecting a business’s performance. Focusing on planning is essential to survival.

Short-term planning is generally concerned with profit planning or budgeting. Long-term planning is generally strategic, setting goals for sales growth and profitability over a minimum of three to five years.

The tools for short- and long-term plans have been explained in the previous chapters: Pro Forma Income Statements, Cash Flow Statements or Budgets, Ratio Analysis, and pricing considerations. The business’s short-term plan should be prepared on a monthly basis for a year into the future, employing the Pro Forma Income Statement and the Cash Flow Budget.

Long-Term Planning

The long-term or strategic plan focuses on Pro Forma Statements of Income prepared for annual periods three to five years into the future. You may be asking yourself, 'How can I possibly predict what will affect my business that far into the future?' Granted, it’s hard to imagine all the variables that will affect your business in the next year, let alone the next three to five years. The key, however, is control--control of your business’s future course of expansion through the use of the financial tools explained in the preceding chapters.

First determine a rate of growth that is desirable and reasonably attainable. Then employ Pro Formas and Cash Flow Budgets to calculate the capital required to finance the inventory, plant, equipment, and personnel needs necessary to attain that growth in sales volume. The business owner/manager must anticipate capital needs in time to make satisfactory arrangements for outside funds if internally generated funds from retained earnings are insufficient.

Growth can be funded in only two ways: with profits or by borrowing. If expansion outstrips the capital available to support higher levels of accounts receivable, inventory, fixed assets, and operating expenses, a business’s development will be slowed or stopped entirely by its failure to meet debts as they become payable. Such insolvency will result in the business’s assets being liquidated to meet the demands of the creditors. The only way to avoid this 'outstripping of capital' is by planning to control growth. Growth must be understood to be controlled. This understanding requires knowledge of past financial performance and of the future requirements of the business.

These needs must be forecast in writing--using the Pro Forma Income Statement in particular--for three to five years in the future. After projecting reasonable sales volumes and profitability, use the Cash Flow Budget to determine (on a quarterly basis for the next three to five years) how these projected sales volumes translate into the flow of cash in and out of the business during normal operations. Where additional inventory, equipment, or other physical assets are necessary to support the sales forecast you must determine whether or not the business will generate enough profit to sustain the growth forecast.

Often, businesses simply grow too rapidly for internally generated cash to sufficiently support the growth. If profits are inadequate to carry the growth forecast, the owner/manager must either make arrangements for working growth capital to borrowed, or slow growth to allow internal cash to 'catch up' and keep pace with the expansion. Because arranging financing and obtaining additional equity capital takes time, this need must be anticipated well in advance to avoid business interruption.

To develop effective long-term plans, you should do the following steps:

1. Determine your personal objectives and how they affect your willingness and ability to pursue financial goals for your business. This consideration, often overlooked, will help you determine whether or not your business goals fit your personal plans. For example, suppose you hope to become a millionaire by age 45 through your business but your long-term strategic plan reveals that only modest sales growth and very slim profit margins on that volume are attainable in your industry. You must either adjust your personal goals or get into a different business. Long-range planning enables you to be realistic about the future of your personal and business expectations.

2. Set goals and objectives for the company (growth rates, return on investment direction as the business expands and mature). Express these goals in specific numbers, for example, sales growth of 10 percent a year, increases in gross and net profit margins of 2 to 3 percent a year, a return on investment of not less than 9 to 10 percent a year. Use these long-range plans to develop forecasts of sales and profitability and compare actual results from operations to these forecasts. If after these goals are established actual performance continuously falls short of target, the wise business owner will reassess both the realism of expectations and the desirability of continuing to pursue the enterprise.

3. Develop long-range plans that enable you to attain your goals and objectives. Focus on the strengths and weaknesses of your business and on internal and external factors that will affect the accomplishment of your goals. Develop strategies based upon careful analysis of all relevant factors (pricing strategies, market potential, competition, cost of borrowed and equity capital as compared to using only profits for expansions, etc.) to provide direction for the future of your business.

4. Focus on the financial, human, and physical requirements necessary to fulfill your plan by developing forecasts of sales, expenses, and retain earnings over the next three to five years.

5. Study methods of operation, product mix, new market opportunities, and other such factors to help identify ways to improve your company’s productivity and profitability.

6. Revise, revise. Always use your most recent financial statements to adjust your short- and long-term plans. Compare your company’s financial performance regularly with current industry data to determine how your results compare with others in your industry. Learn where your business may have performance weaknesses. Don’t be afraid to modify your plans if your expectations have been either too aggressive or too conservative.

Planning is a perpetual process. It is the key to prosperity for your business.

For Further Information

U.S. Small Business Administration Publications

Business Development Booklets

The following booklets and other publications are available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Write GPO to obtain SBA Order Form 115B, which lists publications and current prices.

Handbook of Small Business Finance--Small Business Management Series No. 15.

Ratio Analysis for Small Business--Small Business Management Series No. 20.

Guides for Profit Planning--Small Business Management Series No. 25.

Financial Control by Time-Absorption Analysis--Small Business Management Series No. 37.

Purchasing Management and Inventory Control for Small Business--Small Business Management Series No. 41.

Managing for Profits--Nonseries (GPO Stock No. 045-000-00206-3).

Business Development Pamphlets

Many pamphlets are available from the U.S. Small Business Administration for a small processing fee. Write SBA, P. O. Box 15434, Fort Worth, TX 76119 to request SBA Order Form 115A.

Other Sources

Retailing, Principles and Methods, Richard D. Irwin, Inc., Chicago, IL.

'Understanding Financial Statements,' Small Business Reporter, 1980, Bank of America NT & SA, San Francisco, CA.



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