Why is Financial Planning Important in Business?

Anyone who begins a new business must have at least a basic concept of financial planning and ask, "Why is financial planning important in business?" Many people have the idea that financial planning is a complex process that only the rich need to concern themselves with. The simple fact is that everyone needs to construct a sound financial plan and for business owners this is even more important.

Financial planning isn't just for the rich, it the best way to become rich, says Jonathan D. Pond, financial analyst for PBS´s Nightly Business Report. "People who say they cannot or will not do it are really saying they don't mind spending their golden years under the golden arches, because that's what will happen to them." Pond says that virtually everyone is capable and has the means to become successful. The good news is that financial planning is really easy to do, but the bad news is there is no magic bullet. First you have to save money (and be out of debt), to invest, and the second thing is that you have to know how to invest it.

Sound financial planning is even more important for business owners for some of the following reasons:

o Most business owners are responsible for setting up and tending their own retirement plans. There will come a time when you will want to enjoy a good retirement and, as a business owner, you have no company pension plan, 401(k), or any other of the traditional fail-safe's to fall back on. Dealing with this is as simple as looking into IRAs or SEP, or setting up a complex Keough 401(k) or investing in a retirement business like network marketing.

o You cannot decide how to invest money unless you have planned to deal with debt, cut expenditures, and save. This means setting goals and sticking to them as well as keeping good records.

o The financial aspect of any business is vital to that businesses survival. Trying to succeed without proper organization and management of your finances can and will cause your business to fail.

o Having a sound financial plan for your business will allow you to estimate profits, project sales and the amount it will cost to run the business. Without this information it will be impossible to keep you business on the correct path to success.

The foundation of any sound business plan is having a mix of different kinds of investments including stocks, bonds and fixed-income vehicles, thereby increasing your invested savings by managing the risk.

Financial planning may seem to be just another "job" on your already overlooked schedule, especially if you are a new business owner. Failing to have a solid financial plan in place, however, will certainly take you from business owner to employee very rapidly.

Small Business Retirement - A Way for Safe and Secure Future

Those who are small business entrepreneurs must think up of an effective small business retirement plan for themselves as well as for their employees. There are many reasons for this. The prime and the most important reason for you to think of a good retirement plan is that you are an employer and it is your duty to think about the future of not just yourself but also about the future of your employees. It is better to be smart and judicious enough to make a through research over finding a good small business retirement plan rather than just opting for any that may cost you higher than the usual.

There is more than one benefit for finding a suitable retirement plan for small businesses. Whatever contributions would be made by employer towards the retirement account of his employers, that amount would fall under tax-deductible expenses. The presence of a good retirement plan would also act like an attractive medium for welcoming proficient workers. This would enhance the integrity and credibility of business thus also winning the loyalty of employees.

Let us go through variety of small business retirement that can be selected as per employer's staff strength and other factors -

    * Defined-Contribution Plan - This plan works over the fundamental of an allocation formula that helps in specifying some percentage of employees' contributions. The employees can opt for placing a part of their salaries into their retirement plan and make them grow in a tax deferred way.
    * Defined-Benefit Plan - The employer of a small business has to make decision over the level of advantages that would go as the employees' retirement fund. This could be as a fixated monthly amount or as a percentage over the paid compensation. The amount of yearly contributions is calculated on the basis of age, service tenure; level of salary, rate of inflation and present rate of interest. The present work culture makes this plan less popular as most of the individuals prefer job-hopping in search of greener pastures.
    * Simplified Employee-Pension Plan - This plan calls for directing some percentage of annual salary of employees (3% to 15%) into tax-deferred retirement accounts that are individual based over the discretion. Here the decision for finalizing the extent of investments lies over the employees thus making employers safe from any sort of risk involved. Employees can augment their contributions when they are earning higher and having fewer liabilities. Similarly, they can reduce their contribution when they have financial burdens over them.
    * Savings Incentive Match Plan - This plan provides an effortless small business retirement where there are joint contributions into the tax deferred retirement accounts. The retirement account demands the contribution of 3 percent of employee's annual compensation. Along with this, the employer also makes some contribution that goes into the retirement account of the employees.

The suggested small business retirement are going to make life comprehensibly easier not just for the employer of the business but also for the employees who deserve an equally safe and secure future.

We Need Local Community Financial Planning for Seniors Modeled on SCORE Mentoring

Whenever the federal government regulators create more regulations in any industry, there are always unintended consequences. Take the securities industry for instance; the SEC has put forth so many rules and regulations concerning financial planners and stockbrokers that most firms and most practitioners won't even deal with people who have less than $500,000 to invest. As you know, this is less than 5% of our population, and less than 10% of retirees.

The sad statistic about most people being dead or broke at age 60 is actually a reality in America, even if we don't like to admit it. What we need is local community financial planning mentors, coaches, and consultants for seniors. This way they will not be snookered into some kind of high commission annuity conversion plan of all their assets, or be sold a bill of goods for some type of limited partnership which will never work out.

There are far too many groups that are taking the money from seniors, and because of all the rules and regulations, most financial planners will not deal with those with less than $500,000 in savings, pension, or assets not including real estate. It is my contention that we should model a community financial planning system along the same structure as SCORE, or Service Corps of Retired Executives. These are folks who go out into the community and help small business people, and entrepreneurs.

Most of their services are free, and since it is a nonprofit group, it attracts volunteers and small business people who are starting out on a shoestring. It works quite well, and SCORE is to be commended. This is exactly what we need to promote, and get going on a national level in every community across the United States in my humble opinion. Please consider all this.

The Real Secrets to Smart Small Business Advertising

Small business advertising seems to change in some important way almost every week. As the economy remains tight, making smart choices about advertising becomes increasingly important. The rate of technological change, and the increasing affordability of electronic devices, continually alters the advertising landscape.

Smart small business advertising must weigh in the balance a number of considerations before locking into a plan. These include:

- The struggle of print media to remain viable

- The continuing popularity and importance of social media

- The proliferation of new communication devices

- The equally rapid proliferation of new ways of communicating with these devices

- The growing importance of video

- The shift from such traditional standards as the Yellow Pages to online search

These are only a few of the changes businesses must learn to deal with when planning marketing and sales efforts. At the very least, smart small business advertising today must include far more than traditional advertising, even if the ads are moved from print to electronic media.

What is Smart for Small Businesses Advertising Today?

In the digital age, smart small businesses' advertising must invest the time in understanding the advertising and marketing channels available today. Even more important, they must learn what makes these new channels different, how they are used differently, and which channels are most likely to reach their target customers. Then they must make choices and decisions about how to use each channel most effectively and most cost-efficiently to meet their goals. These are the critical tasks in smart advertising.

The flat space ads used in newspapers and magazines will attract only limited attention online unless it is very special. Today's ads need to move and speak and interact with potential customers. Even a banner ad on a website really needs to do more than just sit there. Small business advertising has changed in important and far-reaching ways.

Smart small business advertising must also note that a website must also be more than a three or four page brochure. Every page must be designed and written to grab the attention of the visitor in as little as 1.5 seconds, or that visitor is gone. Every page has a job to do. Moving people from page to page until they are asked to make a decision is what converts a visitor into a sales lead.

If you operate a brick-and-mortar store, you have the opportunity to take advantage of some very exciting small business advertising tactics to get people into your store, but you must figure out not only the right message and the right offer, but also the right medium, the right device and the platform used by that device. You need to be ready to use location-based email and on-the-spot coupons and special offers delivered by text message when someone is outside your store or in a place where your beverage is served.

What is smart for small business advertising today is discovering the right mix of lead generation tactics, the right amount of advertising, the right focus on providing information and benefits your target market wants, and keeping everything within the budget. When you find the people who can do each of those things for you will be ready to construct a viable advertising campaign.

The Significance of Practical Financial Planning

The concept of financial planning is more complex than what is required. This is because many people try to build up complex plans for themselves. They invite unwanted complexity in to their financial plans. Ultimately they fail in their attempt to make up effective budgets for themselves and their family.

If we are able to produce an effective budget, then it is a very powerful tool that can drive us to a very much desired financial security. But most of the people go wrong in this planning. The major reason for this is their attempt to introduce too much of feelings into the planning.

The point I would like to make clear is that planning has to be done very professionally and practically. You have got to keep the practical aspect in your mind. By practical aspect, I mean that you got to make sure that you are building budget plans that are practically possible. A plan that saves you a fixed amount of money every months the best method of planning.

Most people seem to create budgets that will make up a savings of thousands of dollars every month. The major issue with this is that it is practically impossible. A plan that aims at savings of more than 20% to 25% of your income is the best. It is practically impossible to make your plans aiming at 40% savings of your income true. So the basic point that has to be kept in mind is that you will have to device plans that can actually work out for you.

Financial Resources For Small Businesses

Every business needs a certain amount of money to start. The success of a small business depends on the funding it is able to arrange to ensure a smooth cash flow. Different Business Life Cycle Stages will help determine the type of financing available and timing of receiving the financing. These life cycle stages are:

    * Startup: You develop the business model and infrastructure and start early operations.
    * Growth: Generally a business has an initial time of negative profit until it breaks even and begins to show increased revenues that allow it to grow.
    * Expansion: This is the point at which a business gets to the point where there is sufficient revenue being brought in so that there are no doubts of its survival and it can expand its horizons.
    * Mature: The business is now stable enough to survive most unforeseen circumstances. It has enough backing, capital and support to ensure that even if the market becomes unstable, it can pull through.

While many small businesses may choose to get funding in the early stages to start the business, many need access to financial resources even for a running business especially with those that have seasonal patterns. Finding adequate funding for small ventures can be tough and time consuming. Often entrepreneurs end up utilizing their entire savings to keep the business afloat until other financing is available.

These are some of the financing options available:

    * Self financing
    * Bank Loan
    * Friends and Family Loans
    * Cash Advance
    * Equipment Financing
    * Unsecured Loan
    * Accounts Receivable Factoring
    * Line of Credit
    * Home Equity Lines
    * Credit Cards
    * Inventory Loan
    * Vendor Financing
    * Working Capital Loan
    * Franchise Loan
    * Grants
    * Equity Investment

Several of these options are more appropriate and easier to secure in the later life cycle stages. Small business financing come at a price and also increase the element of risk involved. However, financing becomes necessary to ensure cash flow, purchase assets like property, expansion of business, equipment or inventory purchase, or simply to have adequate working capital. Utilizing financing makes sense versus using up all of your personal assets and resources. But getting a small business financing approved requires that the owner/borrower is able to provide the following:

    * A sound business plan
    * Personal profile with qualifications and experience
    * Personal financial status statement
    * Credit rating of the business if already in operation, or credit history
    * Track record of taxes paid in previous years
    * Collateral that can be used to secure the loan

There are a lot of considerations that go into small business financing. Subsequent articles will expand on each of these options and points.

Uncovering Fraud in a Small Business

It's hard enough managing a small business but when your small business is confronted with fraudulent activity by an employee, it is almost crippling. Five percent of a typical businesses revenue is lost to fraud each year. This five percent adds up over time and unless the fraud is uncovered, it can create cash flow problems down the road that jeopardize the equity you have built up in your small business. Historically, over 80% of all fraud involves the theft of cash. Sadly it is the longtime employee who is often the perpetrator of the fraud. The employee who attends your family weddings, funerals and celebrations, can be the same employee perpetrating the fraud. Such employees rationalize their behavior (justify it) in their minds, no matter how egregious the crime might be to a rational small business owner.

Uncovering Fraud:
Ironically, in most small businesses, the bookkeeping department is commonly the most frequent avenue in which fraud occurs.. How does fraud occur in small business?

1. Dual Cash Responsibilities - In a small business, the employees who deal with incoming and outgoing cash are the ones with the greatest opportunity to commit fraud. Small businesses, due to human resource constraints, often give their bookkeepers dual responsibilities such as recording the incoming and outgoing cash and reconciling the bank accounts. Such dual responsibilities give the bookkeeper the opportunity to commit and cover up fraudulent activities. To prevent this type of fraud it is best to separate and periodically rotate the recording of cash coming into an organization (accounts receivables functions) and the cash going out of the organization (accounts payable functions). Additionally,outsourcing the bank reconciliation to your CPA, will act as a checks and balance in uncovering fraud. You should advise your CPA to analyze and verify all ATM charges that run through your bank statement, with the small business owner. If your small business also utilizes a company credit card it is wise to verify and analyze all credit card charges on the credit card statement every month, with the small business owner.

2. Dual Disbursement Responsibilities - If you allow the same employee to set up vendor accounts and approve disbursements you are giving them opportunities to defraud you. Separate these functions internally. In a small business, the owner should be the one approving disbursements.

3. Billing Schemes - Billing schemes are easy to commit. The typical billing scheme occurs when an employee causes a payment to be issued to either a nonexistent vendor or to a company controlled by the employee. Many employees in these situations have checks sent to their personal residences. This is a scheme that builds over time. It starts out small and, over time, snow balls into a much larger theft. In order to prevent this type of fraud, a small business owner should verify all vendor addresses. Simply cross checking the vendor address on the checks to the telephone book can be all the verification you need. Cross checking a vendor address to employee residential addresses is also a good idea. If the address is a P.O. Box, securing a telephone number for the vendor and calling that number is another good idea. Every vendor should have a corresponding telephone number. If one doesn't there may be a fraud-related reason for this.

Without any process to uncover fraud, the fraud will continue year after year. That is too bad. By implementing some simple internal controls, a small business owner can stop the fraud in its tracks and preserve their hard-earned equity for retirement.

A Financial Planning Business Plan - More Than Experience Required

If you will need to raise outside money to fund your financial planning practice, writing a business plan is a must. In that business plan, you certainly must show that you have the financial experience to be able to advise clients to make wise decisions or to make sound investments on their behalf. However, showing your personal experience is not enough. The plan has to show the groundwork for a business that can achieve economies of scale - that is, the ability to grow 100% in revenue, for example, while growing less than 100% in cost.

Business vs. Freelance Work

Proving to investors that your firm is a fundable business and not just a way to reduce your personal tax liability, requires you to think like a business owner. Although, as you are starting out, the business may rely on your direct work with clients to bring in any revenue, you should have a plan to build on that foundation over time. That could be with products that you sell (i.e. reports, guides, spreadsheets), by pushing down lower skill work to employees, or by hiring additional advisors to work within the company. The plan could also be a system which will allow you to serve more clients per day and manage more assets than another solo financial advisor could, if you can devise such a system.

Economies of Scale

These types of plans show an investor that there is a chance for a much higher return on their investment than if the company's revenues are always a function of your billable hours. They show that the company's products or services are scalable beyond what independent financial advisors can do on their own.

If you want to simply be a busy, freelance financial advisor, you can certainly do so, but your options to bring in outside funding are more limited. The company has little value in a sale and therefore raising capital through equity will be difficult. For a lender, there are no physical assets in the company to act as collateral, so it is less likely to receive a loan. In this case, you are more likely to find success funding the company through a home equity loan or credit cards to get off the ground. In these cases, you don't need a business plan for anything beyond your personal planning and organization.

Small Business Tax Implications of Health Care Reform For 2010

On March 23, 2010 President Obama signed into law one of the largest and most controversial pieces of legislation called the Patient Affordable Care Act (aka Health Care Reform Bill). This new legislation is so complex that it will take nearly eight years to fully implement. The first stage takes effect in 2010 with four distinct provisions. This article will address one of those provisions, The Small Business Tax Credit.

Beginning January 1, 2010, small businesses who contribute 50% or more toward their employees health
insurance premiums for are eligible for a non-refundable small business income tax credit. This provision creates two classes of employers:
1. Eligible small employers and
2. Large employers.

Eligible small employers are defined as employers with 25 or fewer full-time employees with average annual wages of $50,000 or less. Everyone else exceeding these thresholds is, by default, a large employer and not eligible for the credit.

Full-Time Employees:
To determine the number of eligible full-time employees (FTE), an employer must divide total hours worked by all employees by 2,080. Total hours worked by employees cannot include hours worked by any employee that exceeds 2,080 hours for the year. Thus, overtime is excluded from the calculation of total hours. 5% owners and 2% S Corporation shareholders are not considered employees for purposes of the full-time employee calculation.

Average Annual Wages:
To determine the average annual wage base, an employer must divide total wages paid to employees during the year by the total number of full-time employees (from previous calculation). 5% owners and 2% S Corporation shareholders are not considered employees for purposes of the average annual wage base calculation.

Calculation of the Non-Refundable Income Tax Credit:
A maximum non-refundable income tax credit of 35% will be available only to employers with 10 or fewer full-time employees and average annual wages of $25,000 or less. This credit is applied to the employer's share of health insurance premiums and this dollar amount is the credit that is applied against business income tax (or passed through to partners or S Corporation shareholders). The amount of the credit utilized to reduce income tax reduces the employer's health insurance deduction for the year.

These are the two baselines for the credit:

10 full-time employees and
$25,000 in average annual wages.
As the number of FTEs rise above 10 and/or the average annual wage base rises above $25,000, the credit quickly disappears. This is known as a phase-out, and because of the complexity of the formula to determine an employer's eligible credit, a table was created to make it easier to compute the eligible credit. For example, if an employer has 11 FTEs with an average annual wage base of $15,000, the credit is 33%. For each additional FTE above 10, the credit is reduced by 2%. If an employer has 10 FTEs with an average annual base exceeding $25,000, but not exceeding $30,000, the credit is 28%. The credit is reduced by 7% as the average annual wage base exceeds the $25,000, $30,000, $35,000, $40,000 and $45,000 average annual wage base table amount. If you use the tables, the credit is 0% once the total number of full-time employees exceed 24.9 or once the average annual wage exceeds $45,999.

Other Rules:

1. Aggregation rules apply, which means affiliated companies must be aggregated in determining eligibility, the number of full-time employees and average annual wage base.
2. The credit may be applied against regular income tax and alternative minimum tax.
3. If an eligible small business employer qualifies for the credit but cannot use the credit in the current year, they may carry the credit back one year to use against the prior year's income tax.

There is also a credit for non-profit organizations of 25%. This credit, unlike the 35% business credit, may be used to reduce the Medicare portion of payroll taxes (Form 941 will have a line item for this credit).

Cash Flow Management in Financial Planning

Poor cash flow management is one of the reasons cited for small business failure. That can easily translate into "Poor cash flow management can lead to personal finance failure" for the average man. Indeed, the concept and principles of good cash management are very relevant to personal finance. Just as business owners must exercise prudence in managing the cash inflows and outflows, so must you when it comes to your personal finances.

The concept

Cash flow management on the level of personal finances is really about paying attention to your cash needs. You then need to analyse your income and relate it to current and future expenditure. This must be done with a view to creating and maintaining a positive 'net cash flow' for your personal finances. Your cash flow can be identified by looking at your sources of income or revenue:

a) Salary from work/ income generating activities

b) Income from investment (capital gains and interest)

c) Loans and other forms of credit

The principles

Cash flow management offers some principles that can be applied to fiscal management at the level of individuals.

1. Identifying and analyzing what your cash needs are and prioritizing.

2. Properly estimating your current and future cash needs and your ability to meet them.

3. Having a plan for meeting your cash needs without converting key assets to cash.

4. Identifying the best sources to meet your cash needs.

The application of these principles helps to avoid financial cancers like bad debt and regular activities like budgeting. Cash flow management essentially forces us to take stock of what we are doing with our savings and income. Therefore, it is important to financial planning in myriad ways.

1. Budgeting

Budgeting is predicated on sound management of income that creates a cash inflow. You must also manage your cash outflows to ensure that you do not borrow excessively just to meet necessary (or unnecessary) expenditure. Budgeting also encourages us to save for our cash needs. This process is a key manifestation of cash flow management.

2. Managing financial commitments

There is nothing worse than overextending your finances. The only time persons seem to apply ratios is when financial institutions require them. The fact is that cash flow management principles allow us to recognise when we overextend and take steps to correct it. You will not live above your means or purchase unnecessary items on credit because you understand that unbudgeted, unwarranted cash outflows can damage your financial plan. Too many commitments (including undue emphasis long term savings and excess insurance) can lead to a negative cash inflow.

3. Avoiding bad debt or excessive credit

When you have an expected expense or cash outflow (either current or future), you may need to borrow to finance this. However, there is good debt and bad debt. Cash flow management can help you to be aware of the difference between those. It will also help you to relate you credit needs to your income. Therefore, you will avoid taking bad credit or too much credit. Consumer loans and credit card debt will simply be out of the question.

4. Avoiding illiquidity or low liquidity levels

Illiquidity can ruin financial institutions. The credit crunch precipitated the global recession and brought some institutions that were reliant on short-term funding to their knees. When you are illiquid you will feel 'broke'; even if you are asset rich. What do people who are 'broke' do? They get desperate.

They are forced to liquidate when they don't get the best value for their assets or take loans with exorbitant interest rates for want of options. Cash flow management allows us to manage our liquidity so that we can meet cash outflows- even the unexpected ones without facing a liquidity crisis.

5. Risk management

Liquidity risk in investment refers to the inability to sell an asset when you need to. However, other forms of risks that your personal finances face can be identified with cash flow management. For example, you may realise that likely medical expenses may cripple your finances. Therefore, you purchase health insurance to cover that risk. When the unexpected happens- you and your family are covered.

The risk management aspect of cash flow management will also influence how you select your investment options in light of protecting your 'income from investment'. You should seek to avoid not only liquidity risk, but purchasing power risk and inflation risk- to name a few. You will also be able to allocate your assets in relation to future cash outflows and develop different investment horizons. This assists with portfolio diversification.

Conclusion

Cash flow management is not just a term for business owners. It refers to good practise in managing your finances on a whole. In a world where wealth and money is important, good cash flow management ensures that money remains your servant, not your demanding master. Having and maintaining a positive cash outflow reduces the number of problems that you face now and in the future.

Cash Flow Statement Analysis - Essential Element in the Financial Planning Process

After tallying your assets against your liabilities in the exercise to compute your net worth, the next important step the financial planning process would be to prepare and analyze your cash flow statement. The following paragraphs explain why the cash flow statement analysis exercise is an essential element in the financial planning process.

The analysis and monitoring of your cash flow and the organizing of your budget to ensure a positive cash flow position will enable you to take whatever excess cash over your expenditure to allocate it to your savings fund and investment plan to improve your net worth.

Common daily expenditures would include your utilities bills (electricity, water & telephone), groceries bills and transportation bills among others. But the real bane to any financial plan at the initial stage of financial planning of a young individual would be to the monthly repayments to offset any housing loan, car loan or in the worse scenario credit cards debts that may have resulted due a high living lifestyle beyond his or her means.

If in this scenario, the first priority at this financial planning stage would be to tackle these loans / debts head on by adhering to the following strategy:-

1. Tally the total monthly repayment required to pay off your loans / debts. Then budget your monthly expenses to include this monthly repayment required without going into deficit. Keep paying this same amount but reallocating when some loans get paid off.

2. If you have additional cash for the month, always pay off the loan with highest interest rate or the smallest loan first.

3. If they are any need to delay making payment due a lack of cash for the month, do so with the one with the lowest interest rate.

If you are in a better enviable debt free position, then your priority would be a budget which includes a monthly allocation for an emergency buffer fund. This fund is necessary to take care of 6-9 months expenditure in the event you lose your job or in the event of any unforeseen and unwarranted event occurring. During this period, unnecessary expenses should be avoided and delayed gratification need to be the order of the day.

With the emergency buffer in place, only then will you have a clear mind to proceed on the path to seek investment opportunities that abound in the financial market. The allocation earlier set aside in your budget for the emergency buffer can now be channeled to the various investment instruments available in the market such as fixed deposits, bonds and the equities market.

Hence, the preparation followed by the analysis of your cash flow statement will help you decide on the move to the next important step in the financial planning process, i.e. seeking investment opportunities to improve your net worth and to achieve your financial goals.

Cash Flow Forecasts and Financial Planning For Small Firms

Probably one of the most crucial tools for small business success is the fiscal budget. This is a prediction of the expected income and spending that will be generated by the operations of the company for a period into the future. The amount of time extends from a number of months to a year or more ahead of the present time. The financial budget also includes the cash flow forecast for the same time period.

Important Features of a Budget

Loads of small business owners are bemused when asked to supply a financial plan of their company activity. Still this file is fundamental for improved grasp of the long term feasibility of a venture. Furthermore it is very often the most important info that bankers will revert to in the business plan when deciding your application for a loan to back your business operations.

Though budgets can be formed for almost any area of business, such as operational parts like purchasing and stock, monetary budgets present the most meaningful information for your overall decision making. The fiscal budget is a key part of your business financial forecasting. It includes a meticulous analysis of the various categories of income and expenditure that are likely to impinge upon the long term profitability and liquidity of your firm.

Ordinarily prepared as a corollary to the twelve-monthly financial statements, budgets are generally more apt as monthly, quarterly or twelve-monthly forecast of profit and cash flow. Monthly budgets reveal the likely takings that the company will likely earn from its business operations and the predicted related expenditure. This effective device helps you in keeping abreast of the monetary state of your company. It enables you to make applicable decisions that affect company operations such as when to cut back costs on non important services to leverage money owing when sales are slow.

Every month's projected sales will be matched with an estimation of the costs your enterprise will incur in relation to the sales. Costs will incorporate book figures for depreciation and an estimate of probable bad debts. The cost of sales will be knocked off against the sales to reach the forecast gross profit. The forecast gross and net profits in the budget are what your firm would ideally be able to attain given the level of sales expected.

What Financial Plans Show

Your bookkeeper produces a budget of your profit and loss account and balance sheet based on a selection of assumptions. These would consist of the percentage at which turnover will increase month to month and the outlay increases for purchases. The development of your business is revealed principally by the increase in sales. Your budget will ascertain if the pricing structure of your products is too severe and how this impacts your gross profits. You will know what it will cost to stock the required inventory for the projected imminent sales and the corresponding cost of purchases. The budgeted operating expense present you with a reasonable idea of your expenditure in the impending months. You can even determine if your payroll must be trimmed as payroll costs are fixed and to be paid not considering of the quantity of sales.

From an analysis of your budget your bookkeeper will be able to give advice on the effect of any new equipment purchases you may be thinking of making like a brand new fork lift. If you intended to borrow money to expand your premises, the budget will uncover the effect of this manner of financing on the profits because of the payment of interest or repayment of capital. You will furthermore know how much you can borrow before you the organization profitability is affected.

Predicting Cash flow

As soon as your budgeted financial statements have been produced, your accounting services will then prepare the forecasted cash flow for the same time period covered by the financial statements. The cashflow forecast is a report of the in-flow and out-flow of cash from business operations. It reveals the liquidity of the enterprise.

The cash flow prediction takes account of the expected receipts from clients of sales made and likely expense to creditors for purchases done. Interest and capital repayments of arrears are as well factored in as are purchases of inventory. The net result of the in-flow and outflow could be a net inflow of cash into the business or a net out flow of money outside of the firm.

When your business experiences a net in flow of cash, this signals that your venture is liquid and monetarily sound. A net outflow of cash, in particular if forecasted to drag out for months, will throw the continuous practicality of the business into doubt. An illiquid enterprise is a key target for ruin as lenders foreclose on unpaid debts and creditors initiate procedures to get back their losses.

An enterprise can be extremely profitable. Nevertheless, if it lacks adequate liquidity, the organization will not be able to pay debts as they become due. Ultimately the working capital cycle will be hugely affected and this may end in possible organization closure.

Having a budget and cash flow forecast ensures you a very useful idea of whether or not your establishment will remain a profitable venture. Your budget serves as a benchmark against which actual income and expenditure can be compared. It is a critical means for controlling your firm and essential for knowing the direction your business is heading. Without a financial plan you may not know if your sales will be sufficient to cover the parallel costs. You will not be able to ascertain your profits for future periods and can't make rational plans for the growth or cutting of operations.

The cash flow prediction shows the sum of money your business will make and its liquidity amount in the coming months. A net inflow of money portends well for the success of the company.

Bookkeeping Central, based in Melbourne has the wherewithal of doing excellent budgets for small businesses, providing fore casts of profits and cashflow that will assist small business owners to better run their operations. Highly experienced and qualified bookkeepers manage the entire budgeting and cash flow forecasting process based on a complete awareness of the distinctive details of your business.

Facts to Know About Financial Planning Software

If you are in working in an organization or a company there are lots of things and aspects that you need to consider in order for you to maintain your performance in your current company where you belong. However it would be really difficult for you to update your current performance especially if you have tons of deadlines to meet. You need to have a program or software that can easily update and monitor the operations as well as the administrative transactions that are happening in your company. In this way, it would be an easier for you to monitor the current issues of your company. It will also help you in finding ways on how you can improve your performance for the betterment of the group where you belong.

One of the best things to get for your company is to have your own financial planning software. Financial planning software is an example of software that serves as a guide that covers specific subjects such as the organizational structure of the company. It also allows you to review the business financial tips and advices on how to improve the low results and ratings of the company.

This kind of software is designed to give you ease when it comes to the different areas of your company. It does not require you to change your current business processes since this software has almost the same features to those familiar and intuitive Microsoft interfaces. Its functionality is advanced since all your business analysis materials and tools are already provided and installed in your computer. It covers almost all of the processes and transactions that are happening in a typical company or production which makes it a very versatile type of software.

If you think that these programs are not user-friendly, you are wrong with that. Once you purchased and installed this system to your company, along with it is a technical support your problems will be immediately solved. You just need to provide some individuals that will spend time in learning the technicalities and troubleshoots of the software. It would not be a burden for you since the software is already provided with complete and thorough services and processes needed that will fit the business process in your company.

Designing your own financial planning software is not that easy at all. There are lots of aspects and business processes that you need to consider especially when you are the one assigned to create such tasks. You always have to make sure that all the data inputs will coincide with the business processes of your company. This is to ensure appropriate and accurate results needed for the dissemination of information and even in decision-making for the company.

Financial planning software will also help you build a good relationship with your customers through rendering excellent performance and accurate results for them. It serves as your deepest secret and industrial strategy to keep your company on top in terms of meeting your financial goals. It is also considered as unique, sophisticated and client-oriented software that will surely satisfy the needs of your company and your clients as well.

Small Business Tax Implications of Health Care Reform For 2010

On March 23, 2010 President Obama signed into law one of the largest and most controversial pieces of legislation called the Patient Affordable Care Act (aka Health Care Reform Bill). This new legislation is so complex that it will take nearly eight years to fully implement. The first stage takes effect in 2010 with four distinct provisions. This article will address one of those provisions, The Small Business Tax Credit.

Beginning January 1, 2010, small businesses who contribute 50% or more toward their employees health
insurance premiums for are eligible for a non-refundable small business income tax credit. This provision creates two classes of employers:

1. Eligible small employers and
2. Large employers.

Eligible small employers are defined as employers with 25 or fewer full-time employees with average annual wages of $50,000 or less. Everyone else exceeding these thresholds is, by default, a large employer and not eligible for the credit.

Full-Time Employees:

To determine the number of eligible full-time employees (FTE), an employer must divide total hours worked by all employees by 2,080. Total hours worked by employees cannot include hours worked by any employee that exceeds 2,080 hours for the year. Thus, overtime is excluded from the calculation of total hours. 5% owners and 2% S Corporation shareholders are not considered employees for purposes of the full-time employee calculation.

Average Annual Wages:

To determine the average annual wage base, an employer must divide total wages paid to employees during the year by the total number of full-time employees (from previous calculation). 5% owners and 2% S Corporation shareholders are not considered employees for purposes of the average annual wage base calculation.

Calculation of the Non-Refundable Income Tax Credit:

A maximum non-refundable income tax credit of 35% will be available only to employers with 10 or fewer full-time employees and average annual wages of $25,000 or less. This credit is applied to the employer's share of health insurance premiums and this dollar amount is the credit that is applied against business income tax (or passed through to partners or S Corporation shareholders). The amount of the credit utilized to reduce income tax reduces the employer's health insurance deduction for the year.

These are the two baselines for the credit:

10 full-time employees and
$25,000 in average annual wages.

As the number of FTEs rise above 10 and/or the average annual wage base rises above $25,000, the credit quickly disappears. This is known as a phase-out, and because of the complexity of the formula to determine an employer's eligible credit, a table was created to make it easier to compute the eligible credit. For example, if an employer has 11 FTEs with an average annual wage base of $15,000, the credit is 33%. For each additional FTE above 10, the credit is reduced by 2%. If an employer has 10 FTEs with an average annual base exceeding $25,000, but not exceeding $30,000, the credit is 28%. The credit is reduced by 7% as the average annual wage base exceeds the $25,000, $30,000, $35,000, $40,000 and $45,000 average annual wage base table amount. If you use the tables, the credit is 0% once the total number of full-time employees exceed 24.9 or once the average annual wage exceeds $45,999.

Other Rules:

1. Aggregation rules apply, which means affiliated companies must be aggregated in determining eligibility, the number of full-time employees and average annual wage base.
2. The credit may be applied against regular income tax and alternative minimum tax.
3. If an eligible small business employer qualifies for the credit but cannot use the credit in the current year, they may carry the credit back one year to use against the prior year's income tax.

There is also a credit for non-profit organizations of 25%. This credit, unlike the 35% business credit, may be used to reduce the Medicare portion of payroll taxes (Form 941 will have a line item for this credit).

Small Business Cash Flow Management

There are a number of tasks that are essential to be included in any small business cash flow management system. Some tasks are daily, some are weekly and others are on a monthly basis. Defining who is responsible for the tasks and routinely checking that they are done is good management. Be proactive in knowing what cash you will need in the future.

To manage the cashflow of a business, within the day to day operation, it is essential to include the following tasks:

1. Prepare and review your Cash Flow Plan weekly. How much cash are you starting with, what cash is due in and what cash is due out.
2. Reconcile your cash taken daily including payments received from credit cards. Monitor your internal controls for handling cash. Have different people reconcile your bank accounts and cash accounts to those who deposit the checks and cash.
3. Review your Profit and Loss at least monthly. Preferably prepare your P&L in house or get your accountant to do it for you, but do not wait too long. Accounting software packages such as Quickbooks and MYOB are suitable for a range of small businesses and are easy to set up to generate P&L reports.
4. Review your Balance Sheet monthly. Calculate your quick ratio (liquid assets divided by current liabilities) -should be greater than 1 and your current ratio (assets divided by liabilities) - at least 2 to 1 is good.
5. Ensure any excess cash is earning you interest and is also easy to access.
6. See your bank for a line of credit before you need it

A Small Business owner may wear many hats across his/her business, however Cash Flow Management is one area that the Business Owner is wise not to delegate or ignore.

Financial Software - A Quick Guide to Choosing the Best

While one may attribute the success of a business to many factors, one of the most important ones is being able to analyze financial data with precision and accuracy, and then focus more on the profitable parts of your operations. Being able to do better financial analysis and forecasting helps you make better decisions.
Every business that wants to grow needs to ask some important questions, such as who are its most profitable customers; if the right customer segment is being focused on; which products should be continued to be invested in; what the projected cash flow is and where it is expected to come from; what the impact on headcount would be if you launch a new product, and so on.

What you need to answer such questions in the best manner possible is solid data that lets you see clearly, and predict and plan accordingly. And when you need data you can work with, you need a dedicated financial software. Or, to be more precise, a financial forecasting and reporting software.

You can of course find quite a handful of such software solutions right away, especially if you start looking on the Internet. However, not all of them are equally good. Choose one that provides you with a right out-of-the-box solution, letting you dynamically generate an integrated and synchronized set of financial statements with no room for error and virtually no additional work from you.

Some of the best financial software solutions you would get today come with built-in financial intelligence and a high degree of automation of most of the tasks that you've been manually doing so long, including automatically generating the Balance Sheet from P&L transactions and the Cash Flow statement from the P&L and Balance Sheet. There are usually no complex formulas to be built, no need to synchronize multiple workbooks and no "cash plugs" to be formulated.

Two of the biggest advantages of using such a dedicated financial planning software are 100% accuracy and a very high degree of efficiency. It takes care of all major aspects of your financial planning and forecasting, including Income Statements, Balance Sheets and precise and in-depth Cash Flow statements.