Budgeting Tips for small business start ups

In simple words budget is an estimation of all costs, expenditures and of course the profits you might incur in a specific time period, budgets are made normally on yearly or quarterly basis. Just like any other plan, it’s better to put your financial plans in writing. It’s easier to analyze and improve a documented plan which is in front of your eyes instead of analyzing bits and pieces in your mind. A budget can also help in pinpointing the culprits (biggest expenditures); you can make changes on sheet and see the impacts in overall profit/loss of your business. Big businesses have got their financial experts to do this planning, however not all small businesses need to hire such experts. You can do it yourself by keeping in mind the following guidelines.

First, no matter how tightfisted you are, do not play down the expenditures. In other words, employ as many of your cost saving skills in actual business dealings as you can, but don’t give too much weight to these skills while budgeting. For the reason that it will make your business look a lot more profitable then what it will turn out to be. Therefore, don’t be too positive when making estimates for expenditures and profits. The toughest part of budgeting is to make estimation for future sales, no matter how much research you’ve carried out, you can never predict sales with accuracy. If you’ve got some sales or marketing staff, you must discuss and ask them to make sales predictions based on their experience.

You can get lots of small business budgeting templates at internet for free, where you just need to put values and you’ll get the total amount for sales, revenues and profit/loss. These templates are designed by professionals, and they will prompt some expenditure that you’d have forgotten to include. Coming to the second part, which is review and correction. Don’t worry if you found the actual expenditures or profits are different from the budgeted amount (it was supposed to happen because a budget is after all an estimation). Another thing to remember is that your small business budget is not some commandment that must be followed and not be changed. You must keep an eye on the actual expenditures and keep reviewing your budget on regular basis, especially if the budget extends over one year period.

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Consumer's income and its implications on your marketing plans

Marketing plan is not just a yearly ritual that managers should perform, so as to give an impression of being proficient. If truth be told, a sound marketing plan plays a pivotal role in the success or failure of any product (or product line). Along with many other aspects, a core function of marketing plan is to look at the marketing environment and how it will affect the product in question. Marketing plan comprised of (but is not limited to) taking into consideration the overall situation of the market and economy, consumers, competition, upcoming trends and consumer behavior. Another part of marketing plan is customer segmentation based on different preferences, age, demographics or social class.

The most influential factor in consumer’s purchase pattern is of course, their income. Income plays an important role in distinguishing social class and consumer behaviors. A significant shift in consumer's income can invariably change the way they look and decide about purchasing some specific product. When the income increases, normally the quality of the product and the satisfaction they are getting out of this purchase becomes more important, on the other hand when it goes down, the cost may become the most decisive factor. Consumer’s income is also said to effect the hedonic consumption.

There are other factors for sure; however a shift in income can outweigh many of them. Therefore, when you are in the initial stages of making marketing plan, keep in mind the income level and social class of your targeted customers, and build up your plan around it. You can conduct your own research, to get an idea of the average income of your targeted customers; or you can also rely on secondary resources if you are a small business.

The information will help you in determining future demand for the product, consequently helping you in setting prices for your products. Also, when you are about to launch a new product (or an old product in a new market); you must consider the personal income of your targeted customers. For the reason that they are less likely to spend on trying a new product and experimenting when their income is decreasing, no matter how good the product is, except for when someone comes up with an alternate product or service which is cheaper than the existing one (that is why the recession is the best time for small businesses to get a jump start by providing low cost alternatives to the consumers caught in financial crisis).

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Valuing a business before investing into it

Business valuation is the assessment of economic value (Fair market value) for that business. You may need business valuation for a number of purposes, for example when you are looking to invest in some business, or planning to buy/sell some enterprise. Business valuation is not only handy when investing into some business, it also helps in taking better decisions when you are getting into partnership with someone or seeking loans for your business. Valuation is normally carried by professional appraisers, first because it is a complex task and needs professionals to do it; second an outside party will provide a more objective and neutral report. However, a better understanding of what contributes into the valuation of businesses will help you to progress into the right direction.

Just like any other financial report, the appraiser or valuator needs to disclose what approach has been applied for business valuation as all approaches have different pros and cons. Three approaches mostly used for business valuation are

i) Asset based approach
ii) Income based approach
iii) Market approach

Sometimes a combination of all of these approaches is used.

Asset Based Calculation:
Anything of economic value, that a business own is called an asset. As the name suggests, in asset based approach a business worth is calculated as the sum of its assets (both tangible and intangible) minus the total amount of its liabilities. These figures are picked from balance sheet. In liquidity based approach, assets are valued by the net amount they can generate in case their owner decides to sell them in the market.

Income (or earning) Based Approach:
Several methods are used in Income based approach, but the most appropriate method is "discounted cash flows". Unlike asset based approach where business is valued by the value of assets, this approach focuses on the future earning potentials. The drawback of this approach is that it depends mostly on the projected cash flows and expected returns, which are not guaranteed to be correct.

Market Value based Approach:
Market value based approach seeks to determine the business value by comparing it to some recent sales of similar type of businesses. There are no real calculations involved and this is merely an estimated value, which relies on the simple demand and supply rule for the markets.

Most experts recommend a combination of these approaches for a more realistic result. There's no single approach that will suit all types of businesses; stakeholders can choose an approach of their liking or leave it to the professional valuator to decide the most suitable one.

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