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Small Business Basics

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Dear Future Business Owner,

Congratulations on beginning the rewarding journey o owning and building your ownbusiness. There is no doubt that this is a challenging time or entrepreneurs in America.However, it is also true that youve never been needed more. Not only are small- and medium-sized businesses an essential driver o our economy, but they also bring about new productsand ideas that can reshape our nation.

Sony shares that same relentless commitment to innovation and passion to succeed. Some

people call those attributes the intangibles; we like to think o them as the dierence. TheSony dierence provides business owners like you with a diverse line o total business solutionsthat ully leverage our breadth o expertise and resources. In short, you get our best, so youcan do your best.

Sony is proud to be associated with SCORE and to help bring you this invaluable guidethat will get you on your way to making your entrepreneurial dreams come true. For urtherinormation about the products, programs and promotions available to business owners,be sure to visit sony.com/SMBDierence.

I wish you much success in your new venture.

Michael J. WouleVice PresidentStrategic Sales Planning & OperationsBroadcast & Business Solutions CompanySony Electronics Inc.

Dear Entrepreneur,

SCORE, Counselors to Americas Small Business, is proud to bring you a practical workbookto help you pursue your business ideas. Small businesses in America account or 50 percento the private workorce, which makes personal entrepreneurship a vital component o the

American economy. SCORE, in cooperation with Sony, presents this guide or anyone whoseeks to put their ideas and dreams into action.

SCORE and Sony share the common goal to bring useul resources to small business owners.This booklet is intended to be a concise primer on how to transition rom a edgling idea to aully unctioning, successul small business. The ollowing pages eature practical inormationand exercises that will enable you to build a business plan, decide whether to incorporateand how, develop a marketing campaign, and more.

Sony is dedicated to helping small businesses succeed and has partnered with SCORE tomake educational resources available to help small businesses plan or success. You donthave to go it alone. Great resources like SCORE counseling and this workbook can help. Itsall about living your dream.

SCOREs 10,500 counselors volunteer their time and expertise to help small businesses withconfdential, ree business counseling. Founded in 1964, the SCORE Association has helpedmore than 7.6 million entrepreneurs build, expand, and protect their small businesses. Onbehal o SCORE, we are pleased to unite with Sony to bring this resource booklet to smallbusiness owners.

Regards,

Ken YanceyChie Executive OfcerSCORE Association

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score.org Small Business Basics Page 5

The Business PlanA business plan provides you with a comprehensive, detailed overview o all the aspects o yourbusiness. This overview is the skeleton o your businessthe underlying structure that provides thebasis o your entire operation. Prepared in advance, a business plan allows you to review the prosand cons o your proposed business beore you make a fnancial and emotional commitment to it.

There are three reasons to create a written business plan:1. The process o creating a business plan orces you to

take an objective, critical, and unemotional look at yourbusiness prior to and ater its inception.

2. It is an operating tool that will help you manage yourbusiness and ensure its success.

3. It will communicate your ideas to others and provide thebasis or fnancing proposals.

The importance o planning cannot be overemphasized. Your business plan will help you identiyand evaluate areas o strength and weakness; pinpoint business needs that might otherwise beoverlooked; identiy important business opportunities and spot problems beore they escalate.These insights and observations will help you achieve your business goals quickly and eectively.

I. Cover Sheet

A. Business Name and AddressB. Names, Addresses, and

Telephone Numbers oPrincipals

II. Statement o Purpose

III. Table o Contents

IV. SECTION ONE: The Business

Descriptions o:A. The BusinessB. Product/ServiceC. MarketD. Location o the BusinessE. CompetitionF. ManagementG. Personnel

V. SECTION TWO: Financial Data

A. Sources and Applications o FundingB. Capital Equipment ListC. Balance SheetD. Income Projections

(Proft and Loss Statements)1. Three-Year Summary

a. First Year: Monthly Analysisb. Second and Third Years:

Quarterly Analysis2. Notes o Explanation

E. Cash Flow Projections1. Three-Year Summary

a. First Year: Monthly Analysisb. Second and Third Years:

Quarterly Analysis2. Notes o Explanation

F. Historical Financial Reports orExisting Businesses1. Balance Sheets (past 3 years)2. Income Statements (past 3 years)3. Tax Returns

Business Plan OutlineVI. SECTION THREE:

Supporting Documents

Among these: personalresumes, personal balancesheets, cost o livingbudget, letters o reerence,letters o intent, copies oleases, contracts, legaldocuments, and businessmaterials (brochures)

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Section Two: Financial Data

At the heart o any business operation is itsaccounting system. It is essential that you havea competent accountant set up a system thatwill provide you with the raw data or threeessential documents: your balance sheet, yourincome statement (proft and loss statement),and your cash ow statement. It should benoted that there are many excellent andinexpensive computer sotware accountingpackages on the market.

Today, there is absolutely no excuse or eventhe smallest company not to have up-to-

date fnancial inormation on which to basemanagement decisions.

Sources and Applications o Funding

Explain the fnancial set-up o your business byanswering the ollowing questions:

1. How is the business being fnanced?Is the business currently fnanced and isit adequate?

2. Are you renting or buying space?Leasing or buying equipment?

3. How much capital do you have? Howwill you make your borrowing decisions?

Do you have investors?

Capital Equipment List

Provide a list o all business equipment that youown or plan to purchase.

Balance Sheet

Your balance sheet is a record o the liquidityo your business and your personal equity ata given point in time. It is a snapshot o yourbusiness at a particular point in time that showswhat you own and what you owe.

Income Statement or Proft & Loss StatementYour income statement shows how well yourcompanys operations are being perormedover time, usually monthly, quarterly or annually,by subtracting expenses rom sales. Basedupon your past and current income statements,as well as your knowledge o the business, youcan develop income projections. In reality,these projections are based on best guessinormation, but i youve done a thorough jobresearching your venture, these projections canbe surprisingly accurate.

Cash Flow Statement

The cash ow statement is designed to show

how well a company is managing its cash(liquidity) by subtracting disbursements (actualcash outlays) rom cash received. The balancebetween proftability and liquidity can be hardto maintain, making these fgures critical. Fastgrowth (high sales) can deplete cash, whichexplains why even proftable companies ail.The role o projected income and cash owstatements is to help you spot these severeproblems in time to orestall them by raising newcapital or arranging or appropriate fnancing.

Projections are an integral part o your business

plan. These fgures allow you to accuratelyassess the easibility o your business andthe investment required to achieve a stablelevel o operation. Your assumptions must becareully thought-out and explained. Be honest.Be pessimistic. See the ollowing cash owchapter or an expanded look at this criticalcomponent.

Historical Financial Reports

or Eisting Businesses

I you own another business, or haveowned another business, include the same

documentation as above. Personal tax returnsare essential as well.

Section Three: Supporting Documentation

As previously listed, this documentation shouldinclude any materials relevant to this business.See the outline at the beginning o this section.

Use your plan. Re-read it, and update it, ona regular basis. I your proposed venture ismarginal at best, your business plan will show

you why and help you make improvements orabandon the idea entirely. I your business isup and running, your business plan will provideyou, your partner, your banker, your manager,and even your employees with guidelines andstandards or evaluation and improvement.Whether good or bad, the insights oered by abusiness plan are things you need to know.

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Page 8 Small Business Basics sony.com/SMBDierence

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The Marketing PlanI youve ever tried to wade through a marketingtextbook, youve probably come acrosssome wordy and complicated defnitions ormarketing, like this one:

The marketing concept is a managementorientation that holds that the key task o theorganization is to determine the needs andwants o the target markets and to adaptthe organization to delivering the desired

satisactions more eectively and competitivelythan its competitors.

Though this defnition is certainlycomprehensive, marketing has been moresuccinctly defned by Murray Raphel, notedmarketing guru, who said: Find out whatyour customers want and give it to them.

A marketing plan is, essentially, the strategy thatwill help you fnd out what your customers wantand give it to them. Each element is an integralpart o the whole, so its crucial that your

marketing plan include certain components.

Marketing Plan Outline

I. Objectives

II. Research to Support Objectives

A. Who are your present andpotential customers?

B. What are your present and

potential markets?C. Who is and will be your

competition?D. What marketplace trends will

impact your business? How?E. How will your service or product

change in response to yourresearch?

III. Marketing Mi

A. How will you position yourproduct or service?

B. Will you change anyelements o your mix?

IV. Strategy and Eecution

A. Advertising1. Tactics2. Budgets3. Schedule

B. Public Relations1. Tactics2. Budget3. Schedule

C. Expert Assistance1. Agency2. Independent

Designer/Copywriter

V. Anticipated Results

A. SalesB. Customer BaseC. ProftsD. Image

VI. Tracking Actual Results

A. SalesB. Customer BaseC. ProftsD. Image

VII. Final Review o Results with

Respect to Objectives

Your marketing plan should answer theollowing questions:

1. Who/What is your market?2. What are the trends o your market?3. What is your market share (and the

trends o your share)?4. How can you increase your

market share?5. How can you increase proftability

within your market share?

The six steps youll ollow to create yourmarketing plan will provide the answers to thesequestions as you prepare your marketing plano attack.

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Step One: The Five Components

o Market Research

Research is the cornerstone o any marketingplan. Objectives, positioning, strategy,executionall o these elements hinge on theaccurate, insightul conclusions o thoroughresearch. Dont assume you know how yourcustomer eels about your service or productor that your competitors arent encroaching onyour market share. Let your research draw theseconclusions or you. Remember, research neverends. Its a grim reality that on-going researchis a unction o any long-range marketing plan.Youll need to reevaluate your inormation on a

regular basis.

Service or Product

You need to know what youre selling. Todevelop a true understanding o your service orproduct, ask yoursel these questions:

1. Why would someone buy or use this?2. How important is price?3. How long does it last?4. How oten do people need it?5. What do customers like and dislike

about it?6. What do customers base their

purchase on?7. Can it be improved? How?8. Does it require any ollow-up service?

Company

Beore you can decide where your businessis going, you need to look at where its been.Unless youve just opened your doors, theresa wealth o inormation at your fngertips: salesfgures, customer inormation, employee history,and fnancial data. You need to spend sometime developing a profle o your company inorder to amiliarize yoursel with the strengths

and weaknesses that may a ect your marketingplan. I you are a new business, begin trackingthis inormation nowthen you wont have tospend time compiling past fgures.

In-House Data: Analyzing numbers is a greatreason to plunge into the world o computertechnology. I you dont have a computersystem, its time to get one. Your in-housedata may include: Salesdata

Salespersonreports

Warrantycards

Oldmarketingplans

Use this inormation to answer the ollowingquestions:

1. How have sales changed rom pastyears? Are there trends?2. How has pricing aected sales?3. Has the business become more (or less)

proftable as it has grown?4. Have past marketing eorts succeeded

or ailed? Why?

Another important note, dont simply look atdata rom the past year. Analyze several years,and as time moves on, update your analysiswith current fgures.

CustomerThere are a number o elements essential tocustomer research:

CustomerProle

MarketSegmentation

PotentialCustomersandProspects

CustomerTracking

CustomerPerceptions

CustomerRetention

Your customer profle should include statisticalinormation like age, sex, income, occupation,and marital status (demographics); the

location o your customers (geographics); andliestyle inormation like interests, opinions, andvalues (psycho-graphics). I your customer isa business rather than an individual, thesecategories would change accordingly. Forinstance, demographic inormation wouldinclude size, age, number o employees,services and/or products oered, etc.Understanding your present customers willhelp you to identiy potential or look-alikecustomers or target marketing.

Your customer perceptions are the opinions

your customer has about your business, yourcompetition, and the service or product youprovide. Tracking your present customers, andcreating a profle o them, will give you a clearpicture o their inuence on your business. Asa business owner or manager, you need toask yoursel: Am I getting the most rom mycustomers? Do I oer services or productsthat they are not buying? Are there servicesor products that I should carry because mycustomers are buying them elsewhere? Whatdo my customers like most and least about myservice or product?

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Once youve described your customers, youcan begin to divide them into smaller groups.

This is called segmentation. There are twomajor reasons or segmenting your market:1. You can pursue the most

appropriate markets.2. You can develop a very specifc and

appropriate marketing strategy.

Its important to remember that your presentcustomers may be your best prospects. Thisbeing the case, retention marketing mustbe included in your marketing objectivesand strategy. Not only do you want to keepthese people, you may be able to sell them

something else. Maximizing the potential oclients you already have is much less expensiveand less time-consuming than reaching outto potential customers. Its your customer basethat provides stability, so be sure to include thisgroup in your marketing plan.

Competition

There are lots o things you need to knowabout your competition:

1. Who are they?2. What is their market share?3. How long have they been in business?

4. What do they oer that you dont(and vice versa)?

5. Do they advertise and to what extent?6. How do they position themselves?

Marketplace

In addition to your service or product,your company, your customer, and yourcompetition, there are other actors that canhave an impact on your marketing plan.Reerred to as the marketplace, this area (whichincludes actors like seasonality and economictrends) is oten beyond your control. But while

you cant change things, its important to beaware o the aects o these outside sources.

Other marketplace concerns to watch or mayinclude: legal issues, market size and growthpotential, suppliers and resources, ethical/moral and environmental issues.

Step Two: Establish Your Objectives

Now that youve begun to develop a profleo your business, its time to take a look atthe uture. From your research, youll be ableto make decisions about the ocus o yourmarketing plan. Next, youll need to list andprioritize your objectives. There are some issuesto consider when youre establishing these goals

List and compare your marketing goals or thenext year, then fve years, with regard to:

Dollarsales,unitsales,prots

Marketshare,customerbase/market

expansion, and service/product

expansion Changeswithinyourorganization

What are your marketing problems?Rank them in order o urgency.

1. What opportunities/obstacles will youace during the next fve years?

2. What will your competitors be doingduring the next fve years? Will you havemore or less competition?

Based on your answers to these questions, youcan make decisions about where you want to be

(objectives) and how youre going to get there(strategy). Your objectives will keep you ocused,and even more importantly, they will give you away to measure the success o your eorts.

Your objectives will guide the development oyour marketing plan. Your decisions rom here onout are based on achieving these goals. Sincethese decisions will have a dramatic e ect onyour companys human and fnancial resources,make your objectives realistic.

There are variables that will impact your

marketing plan. A hard look at these actors willenable you to make realistic decisions aboutyour plan o attack. These variables may or maynot include:

Budgetlimitations

Limitedknowledgeofmarketingvehicles

Climateofyourmarketplace

Perceptionsaboutyourbusiness

Unortunately, many marketing plans are drivenby budget constraints. There may be no wayaround these limitations, but i you realize whatyou can and cant aord, at least you wont end

up making unrealistic choices.

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Step Three: Determining Your Marketing Mi

Your search or inormation should encompassthe Four Ps o Marketing: Product/Service,Price, Place, and Promotion. These tools mustwork in conjunction with each other in orderor your marketing strategy to be eective. Forexample, lets say youre a veterinarian. Nomatter how good your treatments are (Product/Service), how reasonable your ees are (Price),how convenient your location is (Place), no onis going to bring their dog to you i theyve neverheard o you (Promotion). Or pretend yourean attorney. No matter how reasonable yourpercentage is (Price), how beautiul your ofce

is (Place), how extensive your ad campaignsare (Promotion), no one is going to hire you iyouve never won a case (Product/Service).

We would like to add a fth P to this marketingmix: Positioning. Positioning is what sets youapart rom the competition and establishing aneective position is the single most importanttask o any business owner. Your position canbe based on service, price, convenience orimage, as long as you have your own niche.

To be sure your Ps are in working order,

consider a marketing audit. Included onpage 13 is a list o questions that will yield atremendous amount o inormation about yourbusiness. This marketing audit will not only helpyou complete your research, it will point outspecifc problem areas that may need in-depthattention, and it will illustrate the strengths thatmay orm the oundation o your long-rangemarketing plan.

Step Four: Strategy and Eecution

Regardless o your objectives, your strategy

and execution will be constrained by fnancialrealities. The ideal way to budget is theobjective and task method (where spendingis based on the amount o money needed toget the job done), but or most o us, this isnta realistic approach. Your budget will narrowthe feld o possibilities. So, we recommendthat you complete your cash ow statementto determine the unds available or yourmarketing plan. Then, with your objectivesready, your marketing mix in place, and yourbudget established, youll be ready to developyour strategy.

The two major areas to consider are advertisingand public relations; generally, a mix o the

two is recommended. Dont be overwhelmedby your choices and dont eel obligated tomake a big splash (and a big investment).There are reams o material on these subjectsin libraries, in bookstores, on the web or romtrade associations and consultants. Many PRagencies, as well as specialty or boutiquefrms, will work with smaller frms that donthave large advertising budgets. Ask orreerrals rom other small businesses and orrecommendations rom business associatesand keep your eyes and ears open at businessgatherings and networking events or good

contacts.

There are many inexpensive and creativemethods to get your message across, and youcan generally test the eectiveness beoremaking a big commitment. We have included100 Marketing Ideas to Use Today! on page 14to give you an idea o the variety o inexpensivemethods available.

Be sure to include enough unds or marketing(based upon your research) in your cashow projections and then track the results to

make sure that you are spending those scarcemarketing dollars eectively.

Step Five: Prepare Your Written Marketing Plan

Your written marketing plan is comprised oinormation rom all o the steps weve discussed(an outline o a marketing plan is included inthe ront o this section on page 9). There arethree reasons to prepare a written plan:

1. Your plan will give you and youremployees an actual scheduleto work rom.

2. Your plan will give you criteria by whichto measure the success o your strategy.

3. Your plan will provide you with a startingpoint. I your results arent what you hadhoped, youll be able to go back toyour plan and revise it.

Keep your marketing plan as brie and asspecifc as possible; support your ideas withspecifc costs and timetables; and reviseand update your plan at least once a year(or whenever your goals or circumstanceschange).

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Step Si: Track Your Results

The only way to measure the success o yourmarketing eorts is to track your results. Youneed to know and understand your successesand ailures i youre going to do better thenext time. This research can be conducted inthe very same way you conducted your initialresearch. In act, this ollow-up inormation willbe the basis o your next set o objectives.

Marketing is a cyclical process. Just when youthink youve fnished, its time to start again.So marketing becomes, and must become, apart o your daily business operations. When

you open your doors in the morning, tune intoall o the elements youve learned about in thischapter: your product/service, your customer,your own company, your competition, and yourmarketplace. Remind yoursel o the objectivescurrently in place. Consider your advertisingoptions.

Take another look at your written marketingplan. Beore you know it, marketing will becomejust another part o your business day.

Marketing Commitment Doyouhaveacoordinatedmarketingprogram

or is your sales department unctioning withoutthe support o research, objectives, andstrategy?

Areyouusingthecomputerasamarketingtool and do your employees understandits capabilities?

Doyouimplementamarketingplan and measure its per ormance?

Service/product Howwillcustomerdemandsandtrends

aect your business?

Haveyouinvestigatedpossibleadvantagesthatwould result rom new materials or technology?

Doyouhavepackagesorbrochuresthatcaneectively sell the services or productsthey represent?

Isyourlevelofcustomerserviceadequate? Howareyourqualityandreliabilityviewed

by customers?Customer Whoareyourcurrentandpotentialcustomers?

How do they compare to those o yourcompetitors?

Whydopeoplebuyyourserviceorproduct?What motivates their preerences?

Whatisthefrequencyandquantityofuse?

Marketing Audit

Markets Haveyoudenedandidentiedmajor

segments o your marketplace? Have youoverlooked any small but proftable groups?

Arethemarketsforyourserviceorproductexpanding or declining?

Competition Whoareyourprincipalcompetitors?Howare

they positioned? Where are they headed? Whataretheirmarketshares? Whatfeaturesoftheirservicesand/or

products stand out? Whataretheirstrengthsandweaknesses?Sales Doyouknowwhereyourbestsalesare

coming rom? Which customers? Whichsegments?

Arethereunusualcyclesorseasonsin your business?

Aretheregrowthandprottrendsreected in your sales fgures?

Haveyoudesignedpaperworkand/orcomputer programs to provide salesdata and analyses?

Aretheredecienciesintheselection,training, motivation, perormance, orcompensation o your sales orce?

Pricing Areyourpricepoliciessettoproduce

volume or proft? Howdoesyourpricingcomparewith

the competition? Doyouknowtheprotabilityofeachservice

or product? Does your customer know? Canyourserviceorproductsupport

the costs o advertising? Doyouhavepricingproblemstoovercome?Service Doyourcustomersreceiveefcient,

timely service? Isyourserviceorproductdeliveredin

good condition? Howdoesyourserviceperformance

compare with the competition?Advertising Doyouhaveanadvertisingplan?Ifso,

how is it linked to your marketing plan? Whataretheobjectivesofyouradvertising?

How do you measure the results? Isyouradvertisingbudgetrealistic?Public Relations Doyouhaveaclearideaofwhatyouwould

like your public image to be? Doyoureallyknowwhatyourpublicimage

is, or are your impressions o your imagebased on a ew customer letters or theopinions o riends?

Doesyourcompanynameandlogoaddtoor conict with your image?

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1. Improve your signs inside and out.2. Be sure your acility is clean and neat.3. Put a new coat o paint on your building.4. Extend your hours.5. Redecorate your ofce.6. Improve your display areas.7. Upgrade your indoor and outdoor lighting.8. Improve the atmosphere in your

waiting room.9. Add landscaping to your storeront.10. Improve parking.11. Upgrade or handicapped accessibility.12. Hire a cleaning service.13. Hang credentials on your ofce wall.

Materials14. Develop specifc marketing goals

and write them down.15. Develop an annual marketing budget.16. Publish a newsletter or your clients.17. Send regular press releases to

local newspapers.18. Prepare a brochure o your services.19. Send seasonal greeting cards to clients

and colleagues.20. Send personal thank-you notes.21. Publish a book about your area o expertise.22. Print your business name and logo

on receipts, bags, etc.23. Get a memorable telephone number.24. Ask colleagues and clients or written

recommendations.25. Prepare a port olio o samples

and reerences.26. Publish a business article and circulate

reprints to colleagues and clients.27. Provide telephone stickers to customers.28. Start a fle o local media by requesting

media kits.29. Send out discount coupons.30. Start a fle o ads that catch your eye.31. Begin and maintain a computerized

mailing list.32. Upgrade your company logo.33. Provide all employees with business cards.

Web Marketing34. Create an attractive, easy to ollow site.35. Increase visits to your site by linking to others.36. Get listed on as many search engines

as possible.37. Use your site to promote yoursel and

your business.38. Reer prospects to your site or more

inormation.39. Encourage e-mail responses and

capture those addresses.40. Send out periodic e-mail messages,

promotions, etc.41. Be sure to include your web address

on all printed materials.

Service/product42. Promote new services or products.43. Update your services or products.44. Shop the competition to see what they oer.

45. Analyze and revamp your ee structure.

46. Set up a booth at a trade show.47. Provide discounts or senior citizens.48. Reduce waiting time.49. Establish credit card services.50. Sign on with a reerral service.51. Advertise in the Yellow Pages.52. Oer git certifcates.53. Read trade magazines regularly.54. Visit your bookstore or inormation

related to your business.55. Take a marketing class.56. Read market research.57. Have a sale.58. Advertise in anticipation o busy seasons.59. Create company t-shir ts.

Employees60. Give employee incentives.61. Send employees to training seminars.62. Encourage employee input.63. Provide employees with job descriptions.64. Re-examine employee dress codes.65. Oer employee discounts.66. Implement a sick day/vacation day policy.67. Conduct employee opinion surveys.68. Inorm your employees o your marketing plans.69. Put together an employee handbook.

Customers70. Oer payment plans.71. Conduct customer satisaction surveys.72. Develop a system to track your customers.73. Ask all customers how they heard o

your business.74. Identiy a market you may have overlooked.75. Return all telephone calls.76. Ask your customers to come back again.77. Oer incentives.78. Learn customer names.79. Keep track o customer comments.80. Make ollow-up phone calls to customers.81. Provide regular clients with discounts.

Networking82. Join your local Chamber o Commerce.83. Teach a class at a local college.84. Serve on a city board or commission.85. Oer to speak to local groups.86. Promote jointly with other proessionals.87. Attend a marketing seminar.88. Organize a breakast club with other

proessionals.89. Appear on a local radio or television show.90. Join a trade organization.91. Promote a colleagues service or product.92. Support programs in local schools.93. Organize an open house at your business.94. Host a holiday party.95. Get listed on your local cable

television community calendar.96. Participate in a local parade.97. Start a fle o potential customers.98. Organize a beneft or a local charity.99. Establish yoursel as a spokesperson

or your proession.100. Display colleagues brochures in

exchange or the same.

100 Marketing Ideas to Use Today!

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Managing Cash FlowThe cash ow statement is the most important fnancial planning tool available to you. It allowsyou to not only manage your business or proftability but also or survival. The cash ow statementprovides you with a ormat that will allow you to see where and when cash ows in and out o yourbusiness over a given period o time. The same ormat allows you to project your cash ow oruture periods o time. The advantage o knowing when cash outlays will be made gives you theability to plan or expenses rather than being orced to borrow to meet unexpected cash needs.Thus, a cash ow projection becomes your annual budget.

In order to prepare a cash ow statement,you will need solid fnancial inormation. Thisinormation should be accessible throughan established bookkeeping system thatwill provide you with the raw data or three

documents: your balance sheet, your proft andloss statement, and your cash ow statement.A balance sheet records the cash positiono your business (liquidity) at a given point intime; your proft and loss statement (income)is designed to show how well your company isperorming over time by subtracting expensesrom sales; and your cash ow statement showshow well your company is managing its cash bysubtracting cash outlays rom cash received.

I you can only have one o these threedocuments available at all times, it should beyour cash ow. Business owners and managersshould place positive cash ow ahead oproftability; your primary concern is staying inbusinessproftability will come later.

The inormation youll garner rom a solid,detailed cash ow statement and projectionwill show:

Theamountofcashyourbusiness

needs on a periodic basis: monthly,quarterly or annually

Whencashisneededduringthese

periods o time Whetheryoushouldlookforequity,

debt, proft, or asset sales Whereyourcashwillcomefrom

Each month you should compare the actualperormance to your projections, and adjustyour uture projections to reect the actualnumbers. I cash is not coming in as ast asprojected, see i it is due to a lack o sales

or i collection o receivables has slowed. Bycomparing actual results to projections youcan see i corrective actions are necessary.

On page 17 is a sample cash ow statemento a small law frm. It shows the actual cashin- and outows by month or the past year. Byutilizing this historical inormation, along withsales projections and best guesses basedupon your amiliarity with the business, youcan look orward and produce a cash owprojection. It should be obvious by now howimportant up-to-date fnancial inormation is tothe management o your business.

In this example, there is one owner plus asta attorney who is on salary. Although theowners salary is shown under fxed costs, itcould also be shown as a variable expense orsplit between the two. You will notice that thevarious sources o income are broken downby categories o business. Take note that onecategory, personal injury, represents 46% othe entire cash receipts and is also the mostinconsistent. Careul planning is necessary toproject uture cash ow in any business wheredrastic swings in sales can take place.

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Included on page 18 is a sample cash owprojection sheet. Much o the inormation you

will need to complete your cash ow statementis in two documents you should already have:a proft and loss statement (income andexpense) and a balance sheet (receivablesand inventory). A cash ow statement is notdifcult to prepare but it does take time. Again,there are many inexpensive, computerizedsotware programs that make this a simplertask, but we recommend flling out at leastpart o the orm by hand to get a betterunderstanding o the process. Then, by allmeans, let the computer crunch the numbers!

Analyzing Your Cash Flow Projection

Completing a cash ow projection is onlythe frst step. Youll need to spend some timeanalyzing the inormation youve put together.

How much cash?

The cash ow projection, generally prepared toillustrate monthly outlays over the course o oneto three years, is especially helpul in preparingor cash expenses that are not routine monthlypayments. These outlays might include ahealth insurance payment, the purchase o a

computer system, an ofce renovation, or thehiring o additional employees.

When will I need the cash?

The cash ow projection will illustrate the pointsin your calendar when money will come and gorom your business. The advantage o knowingwhen your cash outlays will be made is thatyoull be able to plan ahead.

How do I get cash?

Cash is generated by sales, but not all salesare cash sales. I your business oers credit,

term payments, or trade credit, you need tobe able to determine when, and i, those saleswill turn into cash. These projections will ormthe basis o a budget and will minimize liquidityproblems.

Where am I losing cash?

Depending on the type o business, your largest

current assets are probably accounts receivableand inventory. To manage these assets properly,you must know:

Theageofyourreceivablesandinventory

Theturnoverofyourreceivablesand

inventory Theconcentrationofyourreceivables

(how many customers, the amount oreceivables they represent, what productsthe receivables cover)

Theconcentrationofinventoryby

product lines

Managing inventory is a tricky business. I yourinventory is selling too quickly, you may be oreitingthe benefts o buying in larger quantities and riskingsales by being out o stock. On the other hand, iyou have too much inventory, you can be tying upyour money while your stock becomes outdatedand obsolete. Its also important to note that bankersare becoming increasingly interested in the qualityo inventory. A proven inventory policy will not onlyhelp you upgrade the quality o your stock, it will giveyour banker added confdence in your businessconfdence that may help with uture fnancing.

Another practice that can jeopardize your cash ow isoering credit. When you extend credit, youre makinga loan; so its important that these customers be goodrisks (you may need to ask or credit reerences anddevelop a standard application). O course, its notenough to simply establish your credit policiesyouneed to enorce them.

Collections can be a time-consuming and costlybusiness. Its extremely important to understand thepros and cons o your accounts receivables policybecause you can literally sell yoursel out o businessi you let your receivables get out o control. Seek

assistance rom your banker and your accountant toestablish a policy that will encourage sales, but wontlet you give away the store.

Once your cash ow projection has been developed,use it as a budget. I cash outlays or a given itemincrease over time, fnd out why and correct theproblem. I cash outlays are lower than expected,review your books and be sure all your bills havebeen paid. I theres a positive discrepancy betweenexpected and actual cash ows, there may be anopportunity at hand. I your projections were too low,determine where and why.

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Receipts JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTA

Cash Collections

Business 2273 3548 0 4098 1425 414 102 2227 0 685 600 0 1537

Probate 3057 1737 2508 612 1200 1107 3941 546 657 6466 1561 0 2339

Personal Injury 84822 0 0 16905 10167 20438 32321 47871 5505 2719 40943 11200 27289

General Trial 5600 4120 2949 3570 3940 4924 1524 4269 3328 3673 10434 2003 5033

Collections 5579 5212 4363 4050 5129 6105 7809 9909 8490 14417 7077 19195 9733

Bankruptcy 1144 900 1920 3060 1428 1160 1812 3946 487 1290 1088 1839 2007

Real Estate 1499 386 466 231 4523 6079 1287 70 323 2182 2029 214 1928

Criminal 7020 743 501 31 2539 500 0 0 0 0 500 785 1261

Divorce & Family 3399 5761 5423 11470 8180 6145 4749 5128 3582 9851 6323 8034 7804

Total Receipts 114393 22407 18130 44027 38531 46872 53545 73966 22372 41283 70555 43270 58935

Ependitures

Fied Costs

Compensation

Wages/Atty Owner 5500 37500 5500 5500 5500 5500 5500 5500 5500 5500 40500 22500 15000

Wages/Atty Sta 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 2500 3000

Wages - Para Pro 3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 3600

Wages - Support 9972 9972 9972 9972 9972 9972 9972 9972 9972 9972 9972 9972 11966

Wages - Admin 650 650 650 650 650 650 650 650 650 650 650 650 780

Total Wages 21622 53622 21622 21622 21622 21622 21622 21622 21622 21622 56622 38622 34346

Payroll Taxes 1730 4290 1730 1730 1730 1730 1730 1730 1730 1730 4530 3090 2747

Health Insurance 1400 1400 1400 1400 1400 1400 1400 1400 1400 1400 1400 1400 1680

Lie Insurance 0 0 0 0 0 8600 0 0 0 0 0 0 860

Retirement 0 0 0 830 0 0 0 0 0 0 0 15000 1583

Total Compensation 24752 59312 24752 25582 24752 33352 24752 24752 24752 24752 62552 58112 41217

Occupancy 8034 8034 8034 8034 8034 8034 8034 8034 8034 8034 8034 8034 9640

Total Fied Costs 32786 67346 32786 33616 32786 41386 32786 32786 32786 32786 70586 66146 50857

Variable Costs

Library 523 523 523 523 523 523 523 523 523 523 523 523 627

Insurance 0 0 0 2500 0 0 0 0 1400 3016 4264 0 1118

Ofce Expenses 1373 1323 1683 1823 1823 1923 1573 1573 1823 1823 1823 4523 2308

Computer Costs 476 2613 499 749 731 431 431 431 431 431 431 431 808Travel 750 625 350 775 500 750 750 750 750 750 750 750 825

Market ing/Advert 1360 1360 1360 1360 1360 1360 1360 1360 1360 1360 1360 1360 1632

Total Variable Costs 4482 6444 4415 7730 4937 4987 4637 4637 6287 7903 9151 7587 7319

Total Costs 37268 73790 73201 41346 37723 46373 37423 37423 39073 40689 79737 73733 58177

Cash Flow/Operations 77125 -51383 -19071 2681 808 499 16122 36543 -16701 594 -9182 -30463 757

Fixed Assets Purch 6650 0 0 0 0 0 0 0 0 0 0 0 665

Net Cash Flow 70475 -51383 -19071 2681 808 499 16122 36543 -16701 594 -9182 -30463 92

Cash Balance - Beg 0 70475 19092 22 2703 3511 4010 20133 56676 39975 40569 31388

Cash Balance - End 70475 19092 22 2703 3511 4010 20133 56676 39975 40569 31388 925

Sample Cash Flow Statement | Year ended 12/31/20XX

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1. CASH ON HAND

(beginning o month)

PLUS:

(a) Cash Sales

(b) Collections rom A/R

(c) Other Cash Income

2. TOTAL CASH AVAILABLE (beore cash paid out)

3. CASH PAID OUT

(a) Purchases

(b) Gross Wages (excludes withdrawals)

(c) Payroll Expenses (taxes, etc.)(d) Outside Services (ofces/operating)

(e) Repairs and Maintenance

() Advertising

(g) Car/Delivery/Travel

(h) Accounting/Legal

(i) Rent

(j) Telephone

(k) Utilities

(l) Insurance

(m) Taxes (real estate, etc.)

(n) Interest Expense

(o) Owners Withdrawal

(p) Loan Principal Payment

(q) Other Expenses (speciy each)

(r) Miscellaneous (unspecifed)

4. TOTAL CASH PAID OUT (total 3a through 3r)

5. CASH SURPLUS (defcit) (2 minus 4)

6. BORROWINGS

7. LOAN REPAYMENT

8. CASH ON HAND (end o month)

Sample Cash Flow Projection CurrentMonth Month Month Month Month Month Month

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Measuring PerormanceJust as you can measure physical health by tracking a ew important numbers like heart rateand blood pressure, you can track your businesss health by keeping an eye on its vital signs. Allbusinesses share a need or sales, and all businesses need to show a proft at some point. Butbeyond these two vital indicators, there are other measurements that help you make sure youreon track, and these may not be the same or all businesses.

A cash business, or example, will not beconcerned with the amount or the age o itsaccounts receivable. A service business will nothave inventory levels to worry about. A retaileris interested in inventory turn and mark-up aswell as product sales, while an accounting frmmay be primarily interested in billable hours peremployee/partner per month. The nature oyour business will determine which actors youshould watch most closely.

Personal computers have revolutionizedbookkeeping, accounting, and fnancialanalysis in the last decade or so. Now, even thesmallest, home-based, part-time business canhave the kind o complete fnancial inormationthat would have required ar more time andexpense to prepare only a ew years ago. The

advent o simple, inexpensive accountingprograms has given smaller companies accessto the kind o inormation that used to be thehallmark o big businesses.

There are a variety o excellent, easy-to-useprograms available or all types o computersthat will allow you to track your:

Sales

Payables

Receivables

Bankbalances

These programs will also generate fnancialstatements at the press o a button. Theresreally no excuse or a lack o good and timelyfnancial inormation.

Most viable businesses have access to thenumbers they need. But many owners and/or managers simply do not take the time tostudy them even though, without a thoroughunderstanding o your fnancial statements,your management decisions could be equatedto shooting rom the hip.

Eploring Your Financial Statements

Which parts o your statements are mostimportant? That depends to some degree onthe nature o your business, but lets ocus frston the essentials and how to analyze basicfnancial inormation.

The three most important fnancial documentsor most businesses are the:

IncomestatementorProtandLoss(P&L)

Balancesheet

Cashowstatements

Take a look at the sample P&Ls and BalanceSheets shown on page 21. These twodocuments can tell you a lot about yourcompanys health. But like your own vital

signs they must be viewed comparativelyand monitored over time.

Your income statement (converted topercentages) becomes a management toolwhen used to compare sales and expenses toprevious periods. Sales o hal a million mightlook great i last year you did our hundredthousand. On the other hand, i sales were amillion dollars the year beore, youve got toknow why. I salaries were 40% o sales in onequarter, and 45% in the next but you haventadded any sta, youll want to do some

analysis.

Lets begin by looking at an example that willhelp you compare your own fnancials to yourprevious track record. In the P&L Statement onpage 21, Column One reects a period o sixmonths with sales o $200,000. In Column Two,sales have risen to $300,000 or an equivalentperioda dramatic increase. This may reect aseasonal upturn in sales or may be indicative oan overall growth trend. Thats great.

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Analyzing Your Numbers

Once you have your fnancialstatements, there are several important

management tools you can applyto get more inormation about yourbusinesss health. The simple ratios onpage 22, can help you keep a fnger onyour fnancial pulse and avoid potentialproblems. You can then compare thesefgures to industry averages.

Column One Column TwoJan-Jun Jul-Dec

SALESproducts $182,000 91% $280,000 93%

other 41,000 20% 70,000 23%returns and allowances (23,000) -12% (50,000) -17%net sales 200,000 100% 300,000 100%

COST OF GOODS SOLDproduct cost 62,000 31% 110,000 37%commissions 17,000 8% 26,000 9%contract labor 11,000 6% 25,000 8%reight 5,000 2% 8,000 3%TOTAL COST OF GOODS SOLD 95,000 48% 169,000 56%

GROSS MARGIN 105,000 52% 131,000 44%

ExPENSES

salaries 50,000 25% 67,000 22%rent 7,000 4% 10,000 3%utilities 1,200 1% 2,000 1%insurance 1,000 0% 1,300 0%marketing 7,500 4% 17,000 6%travel 4,200 2% 8,000 3%entertainment 1,300 1% 5,200 2%telephone 3,400 2% 5,000 2%equipment repair 1,600 1% 2,400 1%equipment leases 4,300 2% 7,400 2%proessional ees 800 0% 2,600 1%depreciation 1,700 1% 2,200 1%interest expense 2,100 1% 2,100 1%miscellaneous 3,500 2% 6,500 2%

TOTAL ExPENSES 89,600 45% 138,700 46%

PRE-TAx PROFIT (LOSS) 15,400 8% (7,700) -3%

Proft and Loss Statement

CURRENT ASSETS CURRENT LIABILITIES

cash .......................20,000 accts pay (A/P) ........ 50,000

accts rec (A/R) .....30,000 notes payable .................... 0

inventory ................35,000 interest payable ................. 0prepaid expenses ...7,000 taxes payable .............. 6,000

FIxED ASSETS LONG TERM LIABILITIES

land ........................40,000 notes payable ......... 125,000

building ................120,000

improvements ........15,000 TOTAL LIABILITIES ..... 181,000

equipment .............10,000

urniture ....................4,000 NET WORTH.............. 100,000

TOTAL ASSETS...... 281,000

TOTAL LIABILITIES AND NET WORTH ......................... 281,000

CURRENT ASSETS CURRENT LIABILITIES

cash ..........................10,000 accts pay (A/P) ......... 90,00

accts rec (A/R) ........65,000 notes payable ............ 20,00

inventory ...................60,000 interest payable ..................prepaid expenses ......5,000 taxes payable ............ 10,00

FIxED ASSETS LONG TERM LIABILITIES

land ...........................40,000 notes payable .......... 120,00

building ...................120,000

improvements ...........15,000 TOTAL LIABILITIES .....240,00

equipment ................20,000

urniture .......................6,000 NET WORTH ..............101,00

TOTAL ASSETS......... 341,000

TOTAL LIABILITIES AND NET WORTH............................ 341,00

Sample Balance SheetsSample One 12/31/20xx Sample Two 12/31/20xx

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LIQUIDITYThese ratios indicate the amount ocash your business has on hand orimmediate use.

Current Assets Current Liabilities

= Current Ratio

The Current Ratio is calculated bydividing current assets by currentliabilities. Current assets includecash and cash equivalents as wellas accounts receivable, inventory,and other assets that you expectto convert to cash within twelvemonths. Current liabilities includesalaries, payables, debt, and otherobligations which will come duewithin twelve months. A Current Ratioo 2:1, or example, demonstrates thatthe company is liquid, or has ampleassets to cover its obligations. In otherwords, or every dollar o debt, thereare two dollars to cover it.

(Current Assets - Inventory) Current Liabilities

= Quick Ratio

The Quick Ratio is obtained by

dividing current assets minusinventory by current liabilities. Sincethe Quick Ratio does not includeinventory, which takes the mosttime to convert to cash, this ratiomay provide a more accurate (or atleast conservative) gauge o yourcompanys true liquidity.

Both o these ratios will vary somewhatrom industry to industry. By checkingyour ratios, you can see how youcompare.

LEVERAGEThe next ratio helps you analyze therelationship between debt levels,assets and net worth. The balancebetween these is especially importantto lenders and/or investors.Debt to worth: Total Debt dividedby Net Worth. This ratio provides abroader, longer term view o thevalue o the business. In this case,total debt, in addition to short term

liabilities, includes long term liabilities,i.e. notes, mortgages, etc. that will notcome due within the year. Total assetsincludes value o land, buildings,

vehicles, equipment and anything ovalue that cannot be expected to beconverted to cash in the short term. Atthe most basic level, it shows that debtcould be repaid i the business weresold and/or its assets liquidated, but itwill also indicate whether the balanceo risk is on the side o the creditors orthe owners.

Total Debt Net Worth

= Debt to Worth

Turnover ratios show your businesssoperating cycles by ollowing the cashows. You do not see the cash untila number o operations take place:order and purchase o inventory, saleo the inventory, and the collection oreceivables. It is critical that you knowthe number o days in each cycle andwhat you can do to improve the timingto its optimum. Receivables Turnoverand Average Collection Period:Your credit policy is one o the mostimportant marketing decisions you

will make. I you are too stringent, youcould lose sales, too liberal and youcould sell yoursel out o business.

The Turnover Ratio, which is calculatedby dividing Net Sales by Receivables,measures the amount o accountsreceivable in relation to sales.

Net Sales Receivables

= Turnover Ratio

The Average Collection Period shows

the average number o days it takesyou to collect your receivables. It iscalculated by dividing 365 by yourreceivables turnover. It is obviousthat you are going to have cash owproblems i your average collectionperiod is 55 days and your creditorsexpect payment in 30 days. Inventoryis a huge concern or retailers andmanuacturers. Careul inventorymanagement in these types obusinesses can oten mean the

dierence between success andailure. I inventory levels are too highyou tie up cash and risk carryingexcess inventory which may become

obsolete. I inventory levels are toolow, you may lose sales and oreitthe benefts o buying in economicalquantities. Calculating your InventoryTurnover ratio can help you maintainthis delicate balance. InventoryTurnover is calculated by dividing youcost o goods sold by inventory. Thistells you how many times a year yourinventory turns over. I your ratio, incomparison to the industry standard,is too low, youre not turning overinventory ast enough. Too high a

turnover ratio probably means yourenot ordering in economical quantitiesbut may be a symptom o otherproblems as well.

Cost o Goods Sold Inventory

= Inventory Turnover

PROFITABILITYThe ollowing ratios show positive ornegative perormance and providebenchmarks or goals.

Gross Proft Margin is a commonmeasure o proftability and isbasically your sales less yourproduction costs. To be able tocompare we show it in ratio orm:

(Net Sales - Cost o Goods Sold) Net Sales

= Gross Proft Margin

Operating Proft Margin is anothermeasure o proftability and shows themain source o cash ow.

Operating Proft Net Sales

= Operating Proft Margin

Return on Sales is an overall measureo proftability. It illustrates thepercentage o profts remaining aterdirect expenses, overhead, unusualitems, and taxes.

Net Proft Ater Taes Net Sales

=Return on Sales

Key Ratios

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Financing Your BusinessIn the liecycle o almost every business there comes a time when additional money is neededto help a business grow, to replace aging equipment, to fll in the gaps o uneven cash ow,to take advantage o purchasing discounts, etc. When the business needs unds, there areour basic sources to turn to:

Saleofassets

Prots

Loans

Newequityorinvestmentcapital

Cash rom operating profts is clearly the bestchoice, but many businesses fnd that borrowingrom their bank is the logical choice.

O course, asking doesnt go hand-in-hand withreceiving. In act, its estimated that in the UnitedStates alone more than 40,000 loan applicationsare turned down every day. Why? For one otwo reasons: the loan is deemed too risky or theapplication didnt present a strong, thorough anclear case.

There are two key ingredients to an eectiveloan proposal: an up-to-date business planand your banks application orms. Mostbanks applications require much o the same

inormation you have gathered or your businessplan. I you meet the necessary credit criteria,approach your banker with a solid businessplan and complete application supporting yourrequest, you should fnd the credit you need.

What kind o loan do I need?

To determine your needs, ask yourselthese fve questions:

1. What will I use the money or?2. How much money do I need?

Minimum? Maximum?3. For what length o time will I need it?4. How will I repay the loan?5. Do I have any other resources or assets

that I could use in place o a loan or toreduce the amount o the loan?

You must match your payment terms to the useo the unds requested. In simple terms, dont askor a long-term loan to meet short- term needsand vice versa. You dont want to be paying acar loan a year ater the vehicle has been carrieo to the junkyard. On the other hand, theres noneed to jeopardize the fnancial stability o yourbusiness by taking out a short-term loan on amajor investment like real estate.

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Using Credit Cards and Debit Cards

For Your Business

A business credit card is a vehicle to access aline o credit. But instead o drawing down onthe line with a check or bank advance, the cardallows you to make purchases at thousands olocations worldwide, as well as on the internet,and also access cash at ATM locations.

Another access product is the debit card thatenables cash withdrawals and point-o-salepurchases similar to credit cards, except undsare directly withdrawn rom your checkingaccount.

Most banks now oer both business credit anddebit cards to their customers. As a businesscustomer you should be aware that the morebusiness you do with your bank deepens youroverall relationship and could provide youwith added rewards and potentially betterpricing. It always pays to get to know yourbank representative to help ensure that theyunderstand your fnancial needs. You will fndthem to be very interested in knowing youand learning more about your business. Yoursmall business representative has access to

substantial fnancial inormation and, workingwith your SCORE counselor, can provide youwith excellent guidance.

Business credit and debit cards provide anexcellent method to separate business andpersonal expenses, a perennial problem osmall business owners and managers. This isespecially helpul or business travelers.

As an owner/manager, business credit anddebit cards can help you take control o yourexpenses. Monthly statements provide a

detailed listing o your employees purchasesand most on-line banking programs are nowcompatible with accounting programs (suchas Quicken) or ease in record keeping. Theconvenience o on-line banking provides youwith the ability to transer unds rom variousaccounts, enabling you to pay bills andmanage expenses rom the convenience oyour computer.

Most business card issuers provide purchaseprotection, insurance, and rewards programsas well as savings and discounts that are an

added bonus. There are a number o dierentoptions available so check with your small

business banker and your SCORE counselor tohelp you choose the one right or your business.

Like any credit vehicle, a credit card can beabused, but used responsibly, it can be anexcellent resource or your business.

Lines o Credit

A business line o credit gives you access tocash or short-term and ongoing fnancingneeds such as:

Short-term,recurring,cyclicalor

seasonal working capital Receivablesorinventorynancing

Cashowmanagement

These are revolving, variable rate loans. Thismeans you make variable payments thatinclude principal pay-down, as well as interestassessed on the utilized portion o your line ocredit. Once you pay down the balance, theunds are available or use again. Lines ocredit are great or emergency undsyoucan secure a line o credit and not pay interestuntil you use it.

Loans

A business loan can provide access to cash ormany kinds o one-time expenditures and orlong-term fnancing needs such as:

RealEstateandequipmentpurchases

Permanentworkingcapital

Businessexpansionandacquisition

Cashowmanagement(relatedto

short-term vs. long-term fnancing) Receivablesnancing

These loans have fxed repayments overa period o time. Oten, the asset you arepurchasing serves as collateral or the loan.With these types o loans, you will own thecollateral at the end o the loan period.

Leasing

There are several types o leases oering exibilityor those who either do not have unds or adown payment, want lower monthly paymentsor oten upgrade equipment. Leasing can serveas a way to preserve capital when acquiring

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business equipment or commercial vehicles.Qualifed applicants can fnance 100% o the

purchase price, including some sot costs suchas taxes, equipment installation, and delivery.Leases can be structured in dierent ways,allowing or several end-o-lease options.These may include returning the equipmentor purchasing the equipment at air marketvalue. Tax considerations play a large role indetermining whether to lease or buy, and youshould review the options with your accountantand banker to determine which alternative ismost advantageous or your specifc situation.

Letters o Credit

Oten used to acilitate international tradetransactions, a commercial letter o credit canhelp you manage risk and make buying andselling easier. A letter o credit is a conditionalundertaking by a bank in which the bank agreesto pay money upon the presentation o specifeddocuments that are in strict compliance with theletter o credits terms and conditions.

SBA Loans

An SBA loan is a loan that has been guaranteed

by the U.S. Small Business Administration. Thismakes it easier or new businesses to get thefnancing they need. Most SBA loan programsare administered through partnerships withprivate lenders. Businesses in need o capital canseek SBA fnancial assistance through preerredlending partners. I your business qualifes, youmay beneft rom lower down payments, longerrepayment terms, and larger loan amounts thanyou might be able to obtain on your own.

The Five Cs o Credit

When it comes to loans, lenders are looking oranswers to a series o questions that all underfve categories: character, capital, capacity,collateral and guarantees, and conditions. Athorough fnancing request will address thesequestions:

Character

Who are you? How long have you been inbusiness? Do you honor your obligations?What is your standing in the community?What do your suppliers say about you? (Theanswers to these questions come rom your

credit history and reerences.)

Capital

Do you have adequate resources to

support your request? Are your assetssound? Does your business have a positivenet worth? Do you have sound personalfnancial statements?

Capacity

What is your ability to repay the loan?How are the loan proceeds to be used?How will they be repaid? (The answers tothese questions come rom your fnancialstatements, particularly your cash owstatement, your proft and loss statement, andyour personal and corporate tax returns.)

Collateral and Guarantees

How can we be sure o your ability to repaythe loan? What can you oer the bank inthe event o deault? (The answers to thesequestions come rom your projected cashow statements and your list o assets.) Inmost instances the bank will require thepersonal guarantees o all principals. Besidesproviding another source o repayment, italso shows your commitment to the business

Conditions

What is the state o the economy? Arethere environmental issues to be concerneabout? How could these aect the fnancia

condition o your business?

Gathering Documentation

Thorough documentation is the most criticalaspect o any loan application. Rememberthat bankers are lending customers depositsand must justiy their lending decisions toothers based on their credit analysis and theinormation you provide. You need to giveyour loan ofcer the ammunition with whichto support your application. Documentationneeds vary, so be prepared to provide any

inormation your banker requests. The threemost important documents youll need toinclude in your loan request are:

BalanceSheet

Prot&LossStatement

CashFlowStatement/Projection

O these three documents, the single-mostimportant is your cash ow statement. Yourbalance sheet will summarize your assets andliabilities. Your P&L will summarize your incomeand expenses. Your cash ow statement willdemonstrate your ability to repay the loan.

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1. Assets _____________________________________(a) Cash _____________________________________(b) Invested Cash _____________________________________(c) Accounts Receivable _____________________________________(d) Inventory _____________________________________

(e) Other Current Assets _____________________________________2. Total Current Assets _____________________________________

(total 1a through 1e) _____________________________________3. Machinery and Equipment _____________________________________4. Furniture and Fixtures _____________________________________5. Leasehold Improvements _____________________________________6. Land and Building _____________________________________7. Total Fixed Assets _____________________________________

(total 3 through 6) _____________________________________8. Accumulated Depreciation _____________________________________9. Net Fixed Assets _____________________________________

(subtract 8 rom 7) _____________________________________

10. Other Assets _____________________________________(a) Goodwill _____________________________________(b) Capitalized Research/Dev. _____________________________________(c) Miscellaneous _____________________________________

11. Total Other Assets _____________________________________(Add 10a through 10c) _____________________________________

12. Total Assets _____________________________________(Add 2, 9, and 11) _____________________________________

13. Liabilities _____________________________________(a) Bank Overdrat _____________________________________(b) Accounts Payable _____________________________________(c) Taxes Payable _____________________________________(d) Interest Payable _____________________________________

(e) Miscellaneous Payables _____________________________________ (f) Current Portion o Long-term Debt _____________________________________

(g) Short-term Debts _____________________________________14. Total Current Liabilities _____________________________________15. Long-term Debts _____________________________________

(a) _______________________ _____________________________________(b) _______________________ _____________________________________(c) _______________________ _____________________________________(d) Less Current Portion _____________________________________

16. Total Long-term Debts _____________________________________(total 15a through 15d) _____________________________________(subtract 15c) _____________________________________

17. Convertible Debentures _____________________________________18. Total Liabilities _____________________________________(add 14, 16, and 17) _____________________________________

19. Equity _____________________________________(a) Preerred Stock _____________________________________(b) Convertible Preerred Stock _____________________________________(c) Common Stock A _____________________________________(d) Common Stock B _____________________________________(e) Paid in Surplus _____________________________________

(f) Retained Earnings _____________________________________20. Total Equity _____________________________________

(total 19a through 19) _____________________________________21. Total Liabilities and Equity _____________________________________

(total 18 and 20) _____________________________________

Projected Balance Sheet CurrentBal. Dates Year Year Year

Resources or

Veteran Entrepreneurs

Veteran business owners andentrepreneurs are fnally getting somerecognition by Congress and thefnancial industry. New legislation,

marketing initiatives by banks andnon-bank lenders, and specialty loanprograms are all designed to assisttransitioning troops and veterans.

An example is the Patriot Loan ExpressProgram rom the U. S. Small BusinessAdministration (www.sba.gov/VETS). Attheir site you can also fnd inormationabout Small Business DevelopmentCenters, Veteran Outreach Centersand other programs targeting veterans

Veteran entrepreneurs and businessowners will also fnd a great source oinormation at http://www.score.org/veteran.html. By the way, almost hal oSCOREs counselors are veterans so whynot seek advice rom someone whohas not only served, but who was alsosuccessul in business?

Be sure to register your business withthe VA at www.vetbiz.gov. Besidesproviding procurement opportunities,this is where anyone wishing to do

business with a veteran or service-disabled veteran-owned business willfnd a list o certifed veteran-ownedbusinesses.

Get involved with your local veteranservice organization, such asthe VFW or the American Legion.Check out websites such as Military.com, RecruitMilitary.com andVeteransBusinessNetwork.com. Use yousearch engine and query veterans inbusiness and see what happens. Look

or opportunities to network, especiallyamong veterans business groups. Its agreat way to get your name out there,fnd suppliers, develop contacts andsometimes even have a good timedoing it.

Take advantage o the assistanceoered because you deserve it andits another way o saying Thanks ForYour Service!

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Technology Support or a

Competitive EdgeThe recession and todays hyper-competitive business environment make it more important thanever to keep your customers happy. To oer dependable service and valuable expertise on anongoing basis, your business simply cant aord downtime.

Resolving technical issues quickly, or avoiding them altogether, requires an active IT maintenanceplan. It doesnt have to be complicated or time-consuming; regular antivirus scans and databackups, and having help available on a moments notice, can prevent costly businessinterruptions and even help you get a jump on your competition.

Think o your IT like your car

Taking your car in or a tune-up can betedious, but it is essential to its ongoingreliability. Likewise, maintaining your companystechnology can pay o handsomely in thelong run. Downtime costs such as lost employeeproductivity, repair and restoration costs, lostsales opportunities, potential lost customersand damaged reputation costs, and evenpossible legal expenses i client data isbreached, can quickly add up to thousands,or even millions, o dollars. You need someone

with the technology to help you implement

basic security processes and fx issues quicklywhich can keep you rom having to pay steeprecovery costs.

Choose a trusted technology provider

Not all technology providers are created equal.When you are shopping or new technology,check the coverage or planned maintenanceas well as emergencies. I you need ongoingsupport, choose a company that oers on-siteservice or replacement equipment coverage.

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You will also want to minimize support wait timeby selecting a provider with 24/7 availability.

And be sure to consider the quality andeectiveness o their telephone support service.Ater all, clear communication leads to betterresults or everyone involved. Its or that reasonthat the call centers or a number o Sony ForBusiness products are located in the UnitedStates.

Keeping your customers has never been

more important

In this economy, its vital to demonstrate yourcompanys unique value and unailing service,

every day. Downtime is not an option. Ater all,i you cant take care o your businesss needs,how can your clients trust you to take care othem? A solid IT service program can help yousolidiy client relationships.

Avoid buying epensive replacement

equipment

A little maintenance can prevent big problems.Think o how antivirus sotware can keepthreats at bay, which could potentially requireexpensive and time-consuming repairs or even

wholesale replacement o inected machines.Reliable and routine service, provided viawarranties and extended service plans,can help you avoid IT emergencies.

IT insurance policies are essential

You wouldnt dream o buying a new carwithout having the right insurance policy. Newtechnology requires the same oresight. Whilenobody likes to spend more than they haveto on technology, its important to evaluatean extended maintenance plan. What arethe consequences o intermittent downtimeor having your team miss a sales proposalbecause o a technical glitch? The best time toinvest in a saety net is beore you need it.

Get peace o mind

Running a business successully means stayingocused on your clients. A warranty or extendedservice plan gives you peace o mind. You knowyour IT is covered, so you can concentrate ongetting things done.

O course, in these economic times, thecoverage you get is only as good as thecompany that backs it. Thats why it is importantto align yoursel with a provider that has a trackrecord o stability and success. As a leader inthe technology industry or over 50 years, Sony isable to oer rapid support response times that

keep you productive and your business runningsmoothly.

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Insurance Options or Your Business

Every entrepreneur knows risk. One way or business owners to manage risk is throughinsurance. Generally, the best way to protect yoursel and your business against the unoreseenis to prepare beore anything happens by securing appropriate coverage. In addition tosupporting your risk management eorts, insurance can also play an important role in youremployee beneft program.

There are two risk exposures that any businessowner can ill-a ord to overlook: property lossand liability loss. Property insurance generallycovers your building, contents, and equipmentin the event that physical property needs to berepaired or replaced due to perils such as fre,thet, wind, or certain types o water damage.Liability insurance helps protect you and yourcompany rom liability arising rom day-to-day business operations. You should considerobtaining sufcient coverage or product liabilityand premises liability to help protect yourbusiness in the event someone is injured whileusing your products or visiting your acility. Inaddition, business owners in search o the mostcomplete protection must also prepare or thepossibilities o business interruption, disability,and the loss o key employees.

Where Should You Start?

In assessing the risk exposures particular toyour business, you should consider what cango wrong and how such events might aectthe running o your business. Here are somequestions you might ask to determine yourinsurance needs:

1. What is your product or service, andto what extent could someone beharmed by using it?

2. Does your business own or leaseproperty?3. What is the current value o the

property used in your business?4. Does the location o the property make

it susceptible to particular hazards(i.e., high crime area, ood plain)?

5. Is your business involved in storingor transporting goods?

6. To what extent is your businessdependent on a major supplier ormajor purchaser?

7. How would dierent types o propertyloss aect your ability to get yourbusiness back up and running?

8. How central is computerization anddata management to the operation oyour business?

9. How does down time translate intocash ow drain and lost earnings?

10. Do any o the contracts or leases youare involved in require you to assumeliability or another party or parties?

This is by no means a complete list, but thesequestions can help you begin to assess yourinsurance needs. Usually, the parameters oproperty exposure will help to uncover the areaso income and liability exposure that need tobe addressed.

Business Owners Policy

While property insurance and liability insurancecan be secured separately, a business ownerspolicy (BOP) bundles both property and liabilitycoverage in one package. A BOP typicallycovers business property that is exposed to riskssuch as fre, smoke, hail, wind, thet, vandalism,and some orms o water damage (i.e., romleaking roos or broken pipes). Insurableproperty includes but is not limited to: buildings,ofce urniture and equipment, machinery,

inventory, and signs. In addition, coveragemay also include protection against businessinterruption.

The main advantages o a packagedarrangement are ease o handling, streamlinedrating procedures, and a reduced need ordetailed risk management decisions. Sinceit is typically less expensive or an insurancecompany to service one policy as comparedto several policies, total insurance costs or theBOP are usually lower or the business owner.

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Employment Practices Liability Insurance

The increase in these liability claims has ueledthe need or a dierent type o insurancecoverageemployment practices liabilityinsurance (EPLI). An EPLI policy tailored to acompanys needs, combined with a proactiveemployment practices program, will providethe best road map to guide a business saelythrough employee claims.

Business owners who purchase EPLI policiesshould ocus particular attention on policylanguage that will provide the appropriatecoverage or their businesses. Policy terms thatmay cause conusion, and thereore requireclear understanding, include:

Defned vs. undefned. The use ospecifc defnitions o coverage mayprovide a threshold or claims to betested, i.e., coverage will be grantedonly or a claim i it meets the expressdefnition contained in the policy.Conversely, undefned terms writtenmore ambiguously in the policy maycover all claims, unless specifcallyexcluded.

Consent vs. coner. When choosinglegal representation, the right oconsent grants an insured businessthe veto power or authority to inuencethe insurance carriers selection ocounsel. Likewise, the right to conerallows a business owner to participatein the selection process withoutauthority to make decisions.

EPLI coverage may also exclude suits involving

employees hired under nontraditionalemployment arrangements, such asindependent contractors, consultants,and volunteers, as well as certain claimsinvolving employment-related deamation,misrepresentation or raud, occupationalhealth- and saety-related issues, and unairlabor practices.

Some EPLI coverage is oered only in certainstates. Thereore, companies with operating

acilities in several states should ensure theirpolicies provide coverage or all acilities.

Because the risk o potential EPLI claims is otenthought to be directly associated with the size oa company, small or amily-owned companiesemploying ew non-related workers maymistakenly believe they ace minimal exposureto liability.

Business Interruption Insurance

While ew business owners would dare think oleaving their buildings and contents uninsured,or their business unprotected rom liability,many neglect to insure the purpose o theirbusinessthe earnings. Business interruptioninsurance helps maintain a regular ow oearnings ater the business has been wholly orpartially disabled by a disaster. In other words,coverage is designed to do or the businesswhat the business would have done or itselhad no loss occurred, including paying orthe lost net profts o the business, plus anycontinuing expenses that may occur during

down time caused by a peril covered bythe policy.

Two types o coverage are gross earningsand extra expense. Gross earnings coverage,oten used by manuacturing frms, protectsagainst interruption by covering a frms netproft plus any continuing expenses and mayalso compensate key employees who mightotherwise be lured away during an enorcedshutdown. Some businesses, such as banks,dairies, bakeries, and newspapers, or example,need to make arrangements or continued

operation even i a permanent locationis damaged or destroyed. Extra expenseinsurance generally covers expenses needed tokeep a frm in business, such as overtime wagesor employees, extra travel, and the costs oworking with substitute or makeshit acilities.Due to the nature o some businesses, bothgross earnings and extra expense coveragemay be necessary to cover overlapping areaso exposure.

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Business Overhead Epense

Insurance

While preparing or business interruption isimportant, so is preparing or the possibility thatan accident or illness could interrupt your abilityto conduct business. Could your frm survivei you were orced to stop working? Businessoverhead expense (BOE) insurance can helpsustain your business during a disability bypaying expenses such as: salaries and benefts;rent, lease, or mortgage payments; propertytaxes; equipment costs; certain insurancepremiums; maintenance costs; and utility bills.In general, benefts are: paid monthly atera predetermined waiting period; limited to amaximum amount; and restricted to a specifedlength o time (oten rom one to two years).

Disability Income Insurance

Business overhead expense insurance doesnot replace the need or your own personaldisability income insurance which protectsyour income, and may replace 45% to 75% oyour pre-disability earnings. The policys costgenerally depends on such actors as the risklevel o your occupation, your age, health,and the scope o coverage.

What Should You Look or in a

Disability Insurance Policy?

When selecting an individual disability incomepolicy, the ollowing are important coverageareas to check:

DenitionofdisabilityPolicydenitions

can vary. Does the policy defnedisability as the inability to perorm yourown job or any job? Select a policy that

will pay benefts when you are unableto work in your occupation or oneappropriate or your education andexperience.

ExtentofcoverageArebenets

available or total or or partialdisability? Are ull benefts paid or losso sight, speech, hearing, or use o limbswhether or not you are able to work?Does the policy cover both accidentsand illness?

AmountofmonthlybenetWhat

percentage o income will the beneft

replace? Most insurers limit benefts romall sources to 70% or 80% o net monthlyincome.

WaitingperiodWillbenetsbegin30,

60, or 90 days, or even six months aterthe onset o the disability? The longer thewaiting period, the lower your premiumswill be.

DurationofbenetsArebenetspayable

or one, two, or fve years, to age 65, or ora lietime? Most people need a beneftperiod that covers their working yearsatleast to age 65 or normal retirement age.

InationriderDoesthepolicyoffera

cost-o-living adjustment? This importantrider should always be considered, or asthe cost o living continually increases youwill want your beneft to keep pace withination.

RenewabilityIsthepolicy

noncancelable, guaranteed renewable,or conditionally renewable? Anoncancelable policy will continue inorce, at the same premiums and benefts,as long as you pay timely premiums; aguaranteed renewable policy will beautomatically renewed or an entire classo policyholders, but the premiums maybe increased; optionally or conditionallyrenewable policies are extended eachanniversary or premium due date i thecompany decides to do so.

WaiverofpremiumsHowlongmustyou

be disabled beore premiums are waived?Under most policies, you wont have topay any more premiums ater you havebeen disabled or 90 days.

OptiontobuymorecoverageCan

coverage be increased without urtherevidence o insurability?

Key Person Insurance

In addition to considering the potential or yourown health crisis, have you thought about theconsequences o suddenly losing a key employeeto disability or death? Along with losing a valuedmember o your management team, you wouldalso be losing the persons skill, know-how and,perhaps, the important business relationships heor she had cultivated over the years. Key person

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insurance covers, or indemnifes, a companyagainst the loss o a valued team members skill

and experience. The proceeds help provideunds to recruit, hire, and train a replacement;replace lost profts; and reassure lenders thatunds will be available to help repay businessloans.

Generally, with key person lie insurance, thecompany owns the policy, the premiums arenot deductible, and the death proceeds arereceived by the company income tax ree,although there may be alternative minimum tax(AMT) consequences or businesses organizedas C corporations. It is always recommendedthat you should consult with your tax advisor,accountant, attorney and/or your banker beoreimplementing any changes to your business.

Needless to say, it is not easy placing a valueon a key employee. Generally, there are threedierent approaches used to determine theamount o insurance that is necessary:

The multiple approach uses a multiple othe key persons total annual compensation,including bonuses and deerred compensation.

The popularity o this method may reect thedifculty business executives have in quantiyinga key employees value. On the other hand, thedisadvantage is that the estimate, typically orfve or more years annual compensation, mayor may not relate to actual needs.

The business profts approach is a moresophisticated method.

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