If a business owner is spending more than five hours a month on any particular function, they must consider outsourcing the work. In today’s world, many functions performed by specialized departments in large corporations are available to small business from small companies. Continue reading
Category Archives: Cost
At the end of January, both the Internal Revenue Service and the Department of Health and Human Services issued two sets of proposed regulations related to the individual mandate of the Patient Protection and Affordable Care Act.
And here is what jumps off the pages at me.
If two government bureaucracies have written regulations on the same material, who reviewed it to be sure that there are no conflicts?
If there are conflicts, whose version overrides the other?
All bookkeeping software, be it QuickBooks, Peachtree, Sage, BeanCounter or my custom written software, is designed to produce the same end product: a general ledger. The output will look somewhat different, but the result should be exactly identical.
Option A – The small business owner does it himself– might be able to see financial problems as they are developing but it becomes a terrible, wasteful use of their time. Probable best use of their time is in marketing and selling of product, not in saving overhead dollars.
Option B – A data entry clerk – can be cost efficient, but without the accounting and business background to recognize an ongoing financial problem. And if there is an accounting firm, how often will they be reviewing the books? If the problems are not caught immediately, will it be too late to save the company?
Option C – A full charge bookkeeper – will not be as cost effective as option B, and comes with the same problems.
What becomes incredibly important is that while this type of software may seem inexpensive and cost efficient at the outset, in reality, it may not be. This is primarily due to the combination of the software and the person doing the data input not being able to recognize problems in the day to day mechanical operations of the business. What appears to be the simplest and most mundane of functions is, in reality, the small business’ first line of defense against financial insolvency. And, in today’s economy, isn’t that what it is all about?
I saw a quote once that read “In a few minutes a computer can make a mistake so great that it would have taken many men many months to equal it.” This is the risk that small businesses take by relying on software alone. The experienced human factor here is simply invaluable to ensure that the errors the computer can not catch are actually caught and that business continues to remain viable.
You have a dream. Your own business. You understand how to run the day to day operations, how to market it, how to interact with and sell the customers.
It would be a shame if your dream never got off the ground because you did not understand the financial reality of making it all happen. Yet that is what happens to the vast majority of start up businesses in this country every year. They die in the womb. Or from Sudden Instant Death Syndrome.
You know that you have started with an entity that limits your liability. You have heard that you should never sign personally for a corporate debt. But the reality is that unless you are going to give ownership of your company to a lender, no one is going to lend to your new corporation without your personal guarantee, and that guarantee has to be worth what you will be borrowing. In order to succeed you will need the resources to sustain your business and yourself through the start up stages and into profitability.
Note that I included yourself in the equation. Another important aspect is time. Budget wise what is your business overhead going to be per month. Add to that your personal overhead. That is what you will need monthly to survive. Now, how long will it take you to sell enough to break even against that total monthly overhead? 8 months? One year? Multiply your monthly overhead by the number of months required to break even and that is your capital requirement.
If you do not have clear access to your capital requirement, you may want to re-think your current entrepreneurial desires.
And, don’t forget to add contingencies for problems. In the real world, if something can go wrong, it will.
In developing a budget, you have to know about all of the expenses. Especially, the ones that the Federal, State and Local Governments will require you to spend. Taxes. Insurances. Permits. Ways you will have to comply to do business. Even if you do not want to.