Consuelo Meux, Ph.D.

If you are just starting your small busines, you know that it can often be an expensive undertaking.  You might get tempted to head to the bank for a business loan right off the bat.  However, before you get going on that loan request, consider some of these advantages and disadvantages of a small business loan.

Advantages:

Cash in hand: When money is tight, small business loans can give you the cash you need to get your business off the ground or to expand it.  For example, you will need funding for some basic start up equipment, marketing, office supplies, website etc. This can add up and having the cash to take care of all of your start up needs at once can be handy.

Allows a Timely Start: New small busienss owners often considering starting part time while still working at a full time job.  A business loan could help make the transition to full time independence quicker.

Stress Saver: Having adequate start up funds from a small business loand can be a way to get your energies on making profits and getting your business off the ground the right way, rather than having to focus on how you’re going to afford that new brochure and advertising campaign.

Terms.  The terms of a small business loan can be long enough that you have the confidence you will be profitable and able to repay the loan on a monthly basis.

Disadvantages:

Interest rates: A loan is a loan and you will pay back more than you borrowed by paying the interest for the loan.  You’re trading money now for money in your pocket later.  Additionally, if you get a loan with a variable interest rate, you could be paying back significantly more than you bargained for.

Credit score: Keeping a strong credit score is imperative as a business person. When you borrow money, there is always a chance that you will not be able to pay it back.  This can lead to tremendous stress and a deterioration of your business, not to mention it will affect your credit score.

Before you make the decision to apply for a small business loan, consider your options:

• Can you borrow money from family or friends to get started?
• Can you start your business part time?
• Can you finance part of it on a credit card?
• Can you cut costs in the beginning and pare down your expenses?
• Can you take some start up equipment donations?
• Can you joint venture with someone to cut costs?  For example, trading advertising or services.

Starting a business means understanding business financing and the advantages and disadvantages of business loans.  Following your dreams and starting your own business can be worth the beginning stress and hard work. Examine your small business loan options realistically and make the best decision for you and your business.

Small business owners must know about their budgets. After decades of consulting small business owners, I really believe that not understanding finances in small business is a primary reasons for small business failures. 

When you own and operate a small business, it is critical that you keep close tabs on your finances.  There’s nothing worse than owing more money at the end of the year than you’ve actually made.  Budgeting your business begins before you open your doors.  In fact, it begins at the business plan level.  Here are some questions to answer:

How much do you have in start-up funding?
What will your actual start-up costs be?
How will you market your business?
How much will your marketing expenses be?
How much will it cost to operate your business?
   Operating expenses include:  
 * Phone lines
 * Web site development
 * Website hosting
 * Merchant accounts
 * Shopping cart software
 * Outsourcing expenses
 * Accountant fees
 * And much more   
What will your profits be?
When will you expect your business to be profitable?
How will you support yourself during tighter months?
How will you pay your taxes?

Lots of questions, right?

The best way to handle tracking your profits and your expenses, and to stay within your budget is to actually make a budget, and keep it.

Creating a budget and keeping to it will not only help you keep out of debt, it will help you make important financial decisions.  How else will you know if you can afford a new software product, a joint venture investment, or if you can outsource your administrative tasks?  That being said, the more accurate your budget, and the more frequently you track your income and expenses, the better your information will be. 

If you track your spending and income on a quarterly basis, that’s great because you will have your financial information and it will be accurate.  However, if you track it on a weekly or monthly basis your information will be that much more accurate. 

The first step to creating a business budget is to think clearly and honestly about your expenses.  Using a spreadsheet or accounting software, create a list of categories and a list of monthly, weekly or quarterly spending available for each expense.  Note that the more frequently you track and account for your spending, the more control you’ll have over your finances.  And your financial information will be more accurate when you need to make weighty financial decisions.

A budget will also help you come tax time!  With an accurate budget, your expenses, profits and taxes are all at the tip of your fingertips.  This means you don’t have to dig through piles of receipts and invoices to find the information your accountant is waiting for.  Time is money, right?  If you haven’t already, save time and save money by creating a small business budget.  You’ll be glad you did. 

Business budgets are a necessity. Just like your personal home budgt, a business budget keeps you on track for your financial goals. A big question is whether or not as a smal business, you should hire an accountant to create and moniter your business budget.  

That answer depends on your ability to keep your budget in order without the accountability of an accountant.  Here’s how to decide whether or not you want to go it alone  in figuring out your business budget situation.

#1:  Do you have a solid understanding about what expenses your business is likely to encounter?  An accountant will have knowledge about the expenses most businesses incur but they may not know your business specifically.  The strength of an accountant often lies in knowing which expenses are tax-deductible.  This information can be helpful when determining your budget.

#2:  If your time spent on accounting tasks is better spent on tasks that bring profits to your business, then it may be wise to hire an accountant or bookkeeper to handle these tasks.  If an accountant is going to be tracking your expenses and cash flow then you may want them to be in on the creation of the budget so they understand your expense categories.

#3:  An accountant is most definitely an excellent resource when you’re setting up your accounting software, even if you plan on doing the bookkeeping yourself.  If you’re going to use a software program like QuickBooks or Peachtree, many accountants are familiar with this software and can advise you on best practices. 

If you hire an accountant as a consultant for your software and you’re going to use the software to create your business budget, you would likely benefit from their knowledge not only about budgeting matters but also how to create your budget on your chosen software.  However, both software programs mentioned above come with comprehensive tutorials and online help, so setting up your business is fairly straightforward and an accountant may not be necessary.

#4:  If you’re going to hire an accountant to do your taxes, they might be able to guide you to the right categories to assign to your expenses, so that doing your taxes takes them less time.  Less time doing your taxes means less time you’ll have to pay an accountant for, which means more money in your pocket.  And that’s always good!  However, if you’re like many and can handle your taxes on your own, the IRS website is a goldmine of information and an accountant is probably not necessary to help with your budget. 

#5:  Lastly, if you hire an accountant to help you create your business budget, you’re likely going to get an earful about what to do with your profits and how to maximize your spending.  It’s all great knowledge to have and anything that helps you do business better is a good idea. 
 

You personal budget is your personal spending plan.  It is your single best tool for knowing where your money is going and how much you have to work with.  Of course, just the mention of the word budget can send even the most structured and organized person running for the hills.  A budget, however, has several tremendous benefits. Among them are:

#1:  A budget makes it easy to save and have extra money.  By tracking your expenses and income and controlling how much you spend on variable expenses, you will quite likely find that you have more money than you thought you needed.  What are you going to do with that extra money?  Of course the experts will tell you to save it and that’s probably a good idea, but maybe you could set aside just a little bit of that extra money to do something fun - like take a vacation or go to that five star restaurant you’ve been anxious to try.

#2:  A budget saves you time.  How long does it take you to collect information at the end of the year for taxes?  Even if you don’t do your taxes yourself, gathering all of those financial documents can take days and can be extremely stressful.  When you have a budget, all of your expenses and income, including your taxes, are documented.  This is particularly the case if you use a spreadsheet program or accounting software.

#3:  A budget makes it easy to track, and control, your spending.  It gives you freedom from the stress of not knowing you have enough money to cover certain expenses.  It is so much better to control your finances than to let them control you. 

#4:  A budget can reduce family and personal stress.  A family budget creates an environment of teamwork and communication rather than one of stress and blame.  Everyone is accountable for the spending decisions made and the financial goals you’re striving towards. 

#5:  A solid budget makes it easy for you to make spending and investment decisions with confidence.  Have you ever had the chance to invest in something but you weren’t sure if you could?  With a solid budget in place you know exactly where you stand financially and your investment decisions can be made with the right information at your fingertips. 

#6:  Budgets help you plan for the future with ease and confidence.  Are you saving for your retirement?  If yes, are you saving the right amount or should you be saving more?  Are you going to need a new car soon?  If you are, will you have the money for it?  A budget gives you the ability and the confidence to plan for the future because you know exactly how much money you have to work with right now.

There really is no downside to budgeting.  It reduces one of the most significant causes of stress and it puts you in control of your money and your future.