Tips / Guide
produce a wide range of articles on generic approach towards better management
and finances for newly startup and growing business owners. Listed below are some
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First Lesson in Brainstorming your Business Ideas
of those who succeed in starting their own businesses have planned for every phase
of their success. Thomas Edison, the great American inventor, once said, "Genius
is 1 percent inspiration and 99 percent perspiration." That same philosophy
also applies to success in business.
enhance your chances for success, first generate a little bit of that perspiration
to eliminate the most common mistakes new business owners make. According to the
experts, most novices should spend a great deal of time researching their potential
businesses and the marketplace.
But, before your business start-up, carefully
research and answer these basic questions:
What niche or void will my business fill?
- What services or products will
- Is my idea practical, and will it fill a need?
- Who is my competitor?
What is my business's advantage over existing firms?
- Can I deliver a better
- Can I create a demand for my business?
you've determined that your business idea is feasible, answer these questions:
What skills and experience do I bring to the business?
- What will be my legal
- How will my company's business records be maintained?
insurance coverage will I need?
- What equipment or supplies will I need?
How will I compensate myself?
- What are my resources?
- What financing
will I need?
- Where will my business be located?
- What will I name my
you are starting a home-based business, you should answer these additional questions:
my home have the space (preferably separate) for a business?
Can I successfully run the business from my home?
Can I deal with the isolation of working from home?
answers to these questions will help you create a focused, well -researched business
plan that should serve as a blueprint. The plan should detail how the business
will be operated, managed and capitalized.
business plan should cover the business basics from goals to management, from
marketing to operations. A business plan is a blueprint for success, so don't
scrimp on the details. A good business plan covers the following areas:
in detail the business and its goals.
Identify the business ownership and the
Discuss skills and experience you and your partners have.
advantages you and your business have over your competitors.
how the business will be managed on a day-to-day basis.
Discuss hiring and personnel procedures.
Discuss insurance, lease or rent agreements, and issues pertinent to your business.
Account for the equipment necessary to produce your products or services.
Account for production and delivery of products and services.
Describe your product or service.
Identify the customer demand for your product or service.
Identify your market, including its size, location and demographics.
Explain how your product or service will be advertised and marketed.
Explain your pricing strategy.
the source and amount of initial capital.
Estimate start-up costs.
Project operating expenses.
Develop a monthly operating budget for the first year.
Develop an expected return on investment and monthly cash flow for the first year.
Provide projected income statements and balance sheets for a two-year period.
Discuss your break-even point.
Explain your personal balance sheet and method of compensation.
Discuss who will maintain your accounting records and how the records will be
"what if" statements that address alternative approaches to problems
that may develop.
businesses must comply with local laws and regulations. You need to know the legal
requirements affecting your business. You may want to consult with a lawyer or
accountant for additional compliance assistance.
and accounting requirements:
will need a -
company and business registration,
- separate business bank account.
your business has employees, you are responsible for -
filing proper tax returns, and
- complying with laws covering employee safety
Understanding Your Market
evaluation is critical and provides the basic data that will determine if and
where you can successfully sell your product or service. This process involves
defining your goals, scrutinizing your competition and your customer base, and
interviewing potential suppliers. The information collected can help you, if necessary,
adapt your product or service to better meet customer needs.
research can help you -
primary and alternative sales approaches to a given market,
make profit projections from a more accurate database,
organize marketing activities,
develop critical short to medium-term sales goals and establish the market's profit
identify what makes your business different from similar businesses with similar
To Ask -
research should answer these basic questions:
are your customers?
Where are they located?
What are their needs and resources?
Is the service or product essential in their operations or activities?
Can the customer afford the service or product?
Where can you create a demand for the service or product?
Can you compete effectively in price, quality and delivery?
How many competitors provide the same service or product?
What is the general economy of your service or product area?
What areas within your market are declining or growing?
on competitors is extremely important. Visit industry trade shows to find out
what your competitors are selling and how they are marketing their products. Similarly,
stay current on industry magazines and publications.
research isn't a one-time activity. Once you establish your business, you should
stay in touch with your customers. You may have to adapt your product or service
and alter your marketing strategy to keep up with your customers' changing needs.
Your Products and Services
are several pricing strategies. Select the approach that will make your goods
or services the most competitive and will help you reach your profit goals.
Cost and Pricing
common pricing practice among small businesses is to follow the manufacturer's
suggested retail price. The suggested retail price is easy to use, but it doesn't
adequately account for the element of competition.
strategy reduces the profit margin per sale.
requires you to reduce your costs and -
obtain the best prices possible for raw materials or inventory,
- locate the
business in an inexpensive area or facility,
- closely control inventory,
limit product lines to fast-moving items,
- design advertising to concentrate
on price specials, and
- limit non-essential services.
word of caution: pricing goods below the competition can be difficult to sustain
because every cost component must be constantly monitored and adjusted. It also
exposes you to pricing wars. A competitor can match the lower price, leaving you
out in the cold.
strategy is possible when price is not the customer's greatest concern. Factors
important enough for customers to justify paying higher prices include -
service considerations, including delivery, speed of service, satisfaction in
handling customer complaints, knowledge of product or service, and helpful, friendly
a convenient or exclusive location; and
strategy targets a precise segment of the buying public by carrying products in
a specific price range only. For example, a store may wish to attract customers
willing to pay more than $50 for a purse. Price lining has certain advantages:
ease of selection for customers, and
- reduced inventory and storage costs.
approach involves selling a number of units for a single price, for example, two
items for $1.98. This is useful for low-cost consumer products, such as shampoo
or toothpaste. Many stores find this an attractive pricing strategy for sales
and year-end clearances.
Factors and Pricing
component of a service or product has a different, specific cost. Many small businesses
fail to analyze each component of their commodity's total cost and, therefore,
fail to price profitably. Once you do this analysis, set your prices to maximize
profits and eliminate any unprofitable services.
components include material, labor and overhead costs. Material costs are the
costs of all materials found in the final product, such as the wood, glue and
coverings used in manufacturing a chair.
costs are the costs of the work that goes into manufacturing a product. An example
would be the wages of all production-line workers producing a certain commodity.
The direct labor costs are derived by multiplying the cost of labor per hour by
the number of personnel hours needed to complete the job. Remember to use not
only the hourly wage but also the dollar value of fringe benefits. These include
MPF, pension, workers' compensation, unemployment compensation, insurance and
costs are those not readily identifiable with a particular product. These costs
include indirect materials such as supplies, heat and light, depreciation, taxes,
rent, advertising, transportation and insurance. Overhead costs also cover indirect
labor costs such as clerical, legal and janitorial services. Be sure to include
shipping, handling and/or storage as well as other cost components. Part of the
overhead costs must be allocated to each service performed or product produced.
The overhead rate can be expressed as a percentage or an hourly rate. It is also
important to adjust your overhead costs annually. Charges must be revised to reflect
inflation and higher benefit rates. It's best to project the costs semiannually,
including increased executive salaries and other costs.
to properly plan cash flow is one of the leading causes of small business failures.
Understanding the basics will help you better manage your cash flow.
business's monetary supply can exist either as cash on hand or in a business checking
account available to meet expenses. A sufficient cash flow covers your business
by meeting obligations (i.e., paying bills), serving as a cushion in case of emergencies,
and providing investment capital.
operating cycle is the system through which cash flows, from the purchase of inventory
through the collection of accounts receivable. It measures the flow of assets
example, your operating cycle may begin with both cash and inventory on hand.
Typically, additional inventory is purchased on account to guarantee that you
will not deplete your stock as sales are made. Your sales will consist of cash
sales and accounts receivable credit sales, usually paid 30 days after the original
purchase date. This applies to both the inventory you purchase and the products
you sell. When you make payment for inventory, both cash and accounts payable
are reduced. Thirty days after the sale of your inventory, receivables are usually
collected, increasing your cash. Now your cash has completed its flow through
the operating cycle, and the process is ready to begin again.
and other balance-sheet items that convert into cash within 12 months are referred
to as current assets. Typical current assets include cash, marketable securities,
receivables and prepaid expenses.
analysis should show whether your daily operations generate enough cash to meet
your obligations, and how major outflows of cash to pay your obligations relate
to major inflows of cash from sales. As a result, you can tell if inflows and
outflows from your operation combine to result in a positive cash flow or in a
net drain. Any significant changes over time will also appear. Understanding this
will lead to better control of your cash flow and will allow adequate time to
plan and prepare for the growth of your business.
is best to have enough cash on hand each month to pay the cash obligations of
the following month. A monthly cash-flow projection helps to identify and eliminate
deficiencies or surpluses in cash and to compare actual figures to past months.
When cash-flow deficiencies are found, financial plans must be altered to provide
more cash. When excess cash is revealed, it might indicate excessive borrowing
or idle money that could be invested. The objective is to develop a plan that
will provide a well-balanced cash flow.
a Positive Cash Flow
business can increase cash reserves in a number of ways.
Collecting receivables: Actively manage accounts receivable and quickly
collect overdue accounts. You stand to lose revenues if your collection policies
are not aggressive. The longer your customer's balance remains unpaid, the less
likely it is that you will receive full payment.
Tightening credit requirements: As credit and terms become more stringent,
more customers must pay cash for their purchases, thereby increasing the cash
on hand and reducing the bad-debt expense. While tightening credit is helpful
in the short run, it may not be advantageous in the long run. Looser credit allows
more customers the opportunity to purchase your products or services. You should
measure, however, any consequent increase in sales against a possible increase
in bad-debt expenses.
Taking out short-term loans: Loans from various financial institutions are
often necessary for covering short-term cash-flow problems. Revolving credit lines
and equity loans are types of credit used in this situation.
Increasing your sales: Increased sales would appear to increase cash flow.
However, if large portions of your sales are made on credit, when sales increase,
your accounts receivable increase, not your cash. Meanwhile, inventory is depleted
and must be replaced. Because receivables usually will not be collected until
30 days after sales, a substantial increase in sales can quickly deplete your
company's cash reserves.
you hire an accountant, find someone who is knowledgeable, capable and discreet.
With the ever-changing complexities of tax laws and developments in accounting
methods, it is important to look for an accountant who takes advantage of educational
seminars, professional publications and other continuing-education opportunities.
Raising Money for a Small Business
key to a successful business start-up or expansion is your ability to obtain appropriate
financing. Raising capital is the most basic of all business activities.
are several sources to consider when looking for financing. Explore all your options
before making a decision. These include -
- friends and relatives,
- banks and,
be successful in obtaining a loan, you must be prepared and organized. You must
know exactly how much money you need, why you need it, and how you will pay it
back. You must be aware of the bank's loan policies. Many financial institutions
require fully secured loans and sufficient commitment of capital by the borrower.
of Business Loans
loans: Short-term loans are paid back in less than one year. Types
of short-term loans include -
- accounts receivable and
- revolving lines of credit.
loans: Long-term loans generally have maturities of more than one year
but less than seven years. Real estate and equipment loans may have maturities
of up to 25 years. Long-term loans are used for major business expenses such as
- furniture and fixtures,
- commercial mortgages
- real estate.
For a Loan
of your loan request depends on how well you present yourself, your business plan
and your financial needs to a lender or investor. The best way to improve your
chances of obtaining a loan is to prepare a thoughtful and professional-looking
proposal. The proposal is your business plan with a few important additions:
In the executive summary, state the purpose of the loan and the exact amount required.
Explain specifically what the loan will be used for and why it is needed.
In the financial information section, include personal financial statements on
yourself and other principal owners of the business, if this will be a partnership.
Also identify the collateral you would be willing to pledge as security for the
Lenders Look For
loan officers will order a copy of your credit report from a credit-reporting
agency. The lender will also look at your work history and bank reference. Using
the credit report and the information you have provided, the lending officer will
consider the following issues:
you have a sound record of credit-worthiness?
Do you have sufficient experience and training to operate a successful business?
Have you prepared a loan proposal and business plan that demonstrate your understanding
of, and commitment to, the success of the business?
we cover all the major generic areas you should think of during your business
start-up phrase. Of course, you are always welcome to contact us and discuss your
requirements in a more detail manner.
Business Financial Status Checklist
your financial records up to date won't be a problem if you do what is necessary
on a regular basis. Though particular accounting needs may vary somewhat, the
following checklist will help you understand the most common tasks required to
maintain accurate accounting records.
Total all cash on hand.
Record income. Enter a summary of sales and cash receipts in an income ledger.
Record all payments made by cash or check.
Enter deposits in your business checkbook to keep the balance current.
Record inventory, adding any new items received.
Review accounts receivable, and take action to collect from slow payers.
Review accounts payable, remembering to take advantage of discounts.
Deduct items sold from inventory, adjusting records to reflect the week's sales.
Balance checkbook. Reconcile your checking account records to your bank statements
to ensure that both sets of records are in agreement.
Total all ledgers. Compute monthly totals for sales, expenses and payroll.
Age accounts receivable. Update your unpaid accounts, listing them by length of
time on the books, i.e., 30, 60 or 90 days. Use this list to discover which accounts
require extra collection attention.
Review inventory. Check inventory levels to see which items aren't moving so you
can replace them with new stock.
Reconcile petty cash. Make sure the actual cash, plus the total of the paid-out
receipts for expenses from petty cash, are equal to the starting balance. Replenish
Prepare income statement. This will reflect the sales, expenses and profit for
that quarter and for the year to date. Many larger businesses generate this report
(as well as the balance sheet and cash flow statement below) monthly as well as
Prepare balance sheet. This will indicate the financial position of the business
at the end of the quarter.
Prepare cash flow statement. This will reflect the cash activity and ending position
for the quarter.
Total all ledgers. Compute yearly totals for sales, expenses and payroll.
Prepare income statement. This will reflect the sales, expenses and profit for
balance sheet. This will indicate the financial position of the business at the
end of the year.
Prepare cash flow statement. This will indicate the cash activity and ending position
of the business at the end of the year.
Assemble tax papers. Pull together all the documentation you're going to need
for filing your Profits Tax Return.
Meet with your accountant. Turn over your tax documentation and set up a time
to discuss your financial condition and tax strategy for the coming year.
Set up new books. Prepare for the coming year by setting up your ledgers.
Simple Steps towards Succession Planning
Hong Kong people think of succession planning, they think only of a will. There's
much more to consider. The following will give you an outline of what we need
to make your estate plan complete. We will discuss with you to apply the most
current tax, trust, estate and family laws to your personal situation.
Designate a team of professional
complexity of your situation will determine the assistance you will require from
professionals to create your estate plan. Your team may include a financial adviser,
lawyer and tax planner.
Draw up a household balance sheet
household balance sheet is a summary of your financial situation that ultimately
determines your overall net worth. The balance sheet will help you see how vulnerable
you might be to shifts in your circumstances. It assists you to guard against
the effects of tragedy by letting you review income that will be available to
support your family, including insurance proceeds from policies.
also helps to understand how risk tolerant and comfortable you are with handling
your debt. And it reflects on your lifestyle and considers what is important to
you. This will help in long-term financial planning.
Understand your insurance needs
insurance is crucial to estate planning. It's important to match your long-term
financial objectives with your insurance needs. Proceeds from insurance policies
can be used to provide income, pay estate expenses and leave an inheritance.
Formulate your tax and investment strategies
insurance is protecting your wealth and beneficiaries, you should have your investment
and tax plan to build your wealth. The key objective is to maximize growth in
the long term, which supposes a degree of risk or volatility. The nature and extent
of your investments will have a substantial impact on the rest of your financial
planning. For example, the greater your investments, the less life cover you may
up a Will
will designates an executor (or personal representative) to administer your affairs
on death and a guardian for any minor children. We will advise you the practical
considerations in selecting appropriate individual to carry out the terms of your
won't become effective until your death. Until then, you can change the terms
or revoke it completely - as long as you are mentally competent. Your will should
be reviewed at least once every three years to ensure it has not been affected
by changes in legislation or your personal situation.
Establish power of attorney for property and personal care
some point in the future you may be unable to make your own financial or medical
decisions. But you can prearrange for someone to make these decisions according
to your wishes by having a lawyer draft a separate power of attorney for property
and personal care.
power of attorney for property gives one or more people the authority to manage
your financial affairs if you cannot do so - the person you appoint should be
someone you would literally trust with your life. A power of attorney can be general
or limited. All powers of attorney terminate on death, or on death of the person
you have appointed as attorney. You can revoke a power of attorney at any time,
as long as you are mentally competent.
Minimize taxes and administration fees
estate may encounter certain obligations for income tax and estate duty on your
death, which may reduce the proceeds intended for the beneficiaries of your estate.
We will explore the opportunities to avoid estate duty and the cost/benefit of
establishing a family trust.
Keep track of accounts and important information
of the most difficult roles for an executor and family members is gathering the
information required to settle the estate. Eliminate this concern by centralizing
all household information from birth certificates, passports and other legal documents
to bank accounts and insurance policy numbers. Once you have documented your important
information, store a copy in a safe place and let someone close to you know where
and update regularly
and, if necessary, update all information at least once a year. By updating your
estate plan, you will get a snapshot of where you are on an annual basis. This
gives you the opportunity to trace your progress and, if need be, to revise your
financial plan to get where you want to go. This should include a review of your
company's benefit statement for coverage and beneficiary designations for MPF
and life insurance.
Let someone know
final piece of the puzzle is communication. It is really important to communicate
your plans to a family member or close friend whom you can trust, and who is capable
to work with your lawyer or adviser to execute your estate plan. Finally, by working
closely with our team of experts, it will provide you peace of mind that comes
from knowing your loved ones will not be burdened by resolving your personal and
Golden Rules of Investing
Keep some money aside for rainy days
that you have adequate savings to cover your possible short-term needs. An emergency
fund is the first pillar of any investment portfolio, and should be in place before
investing in fixed income or growth.
Other aspects of financial planning are also important
you have financial dependants, nothing is more important than life and disability
assurance. Your investments are unlikely to provide financial security for your
dependents, no matter how well they perform.
Invest for growth
Invest in what you know or what you use or what
you believe to be a long-term trend. Buy only what interests you. Choose assets
that offer good long-term growth. Equities have historically outperformed everything
else over the longer term. Look for companies that have great barriers to entry
or whose products or services would be extremely costly to be replicated or replaced
in the market.
buy stock solely on someone else's recommendation. Whether it comes from your
broker, your uncle, your high-school fans, or some Fool, if you don't know anything
about the recommended company and don't have a natural interest in learning more
about it, don't buy. Resist that temptation.
Spread your investments
Diversification reduces risk. No matter how
good a particular share, unit trust or individual stock market might seem, the
less the spread of your investments, the greater the risk you are taking. It makes
sense, therefore, to spread your risk not only amongst the different asset classes
but also among different companies, countries and currencies.
Guarantees can cost
There is nothing more attractive than a guarantee,
especially an investment that offers stock market-type returns without any risk
to your capital. Guarantees can cost and the price can result in a possible reduction
in returns, especially when the investment horizon for principal guaranteed products
is too short.
surest way to protect your investment is to establish the discipline of investing
to the market on a monthly basis. Repeat-purchasing investor is buying stock during
the market's incline and decline. This minimizes the real risk. With a long-term
perspective and frequent savings, it pushes an investor portfolio back to break-even
sooner than the one-time-upfront investor.
7. Don't forget about inflation
If you are not protected from it, inflation will eat into your capital and
income. Prices will go up over time and you should ensure that your investments
and the income they produce have the ability to do likewise.
Avoid the temptation to chop and change your portfolio
- give shares and unit trusts time to perform. Switching from one investment to
another, especially chasing yesterday's winners is one of the quickest ways to
destroy wealth. There may also be cost implications in the form of investment
and disinvestment fees. Bear in mind if you develop the habit of day trade, week
trade or month trade, you are not investing. You are gambling.
early and for long term
the market doesn't work. To our knowledge, there are no proven approaches or human
in history (known to public so far!) that are able to time the financial market
movement consistently and accurately. The best investment is time - understand
the benefits of compound interest, and use it to your advantage. The sooner you
start with your financial and investment planning, the better.
can't live in fear of stock market crashes, because if you don't play, you don't
win. The market has a "must be present to win" criterion. There will
always be artificial reasons that someone will tell you why you should sell stocks
and go to cash. Ignore it! The most money that has ever been lost in the stock
market is that which sat on the sidelines because of fear.
finally¡Kthere are no get-rich-quick strategies that work. If you know it,
everyone knows it. The best advice you get is in the mirror. Use your common sense
and judge why you buy, what you buy and when you buy.