We as business people and entrepreneurs tend to dwell on revenue generated by our daily pursuits. We focus on increasing sales and market share, but what about profits? When our daily routines produce profits for the company what happens to them? The first thought is expansion, retiring debt, increasing employees and inventory, but what is your plan for getting your money back out of the business?

Have you designed a budget that allows you to return the intial investment made by you and/or others? It is not sacrilege to pay your principles from the profits of the company…you just have to include it in your budgeting, which really the point of this post.

Budgeting can be as effective in increasing profitability, as your sales and marketing strategies. Too many times businesses do not maintain a written budget that accounts for all expenditures. This leads to unnecessary expenses, redundant practices and a lack of competitive pricing for services, materials, and supplies.

When setting up your budget, be sure to use a spreadsheet or an accounting program that allows you to determine what percentage of revenue each expense represents. This will give you a basis for analysis of expenditures to determine if best practices are in use in areas such as purchasing, employment costs, and debt repayment.

Once your have established your budgeting protocol, analyzed your expenses, corrected any irregularities or needless practices, it is time to budget for the coming year. This is where you begin paying yourself and/or other stake holders. Be sure to consult with your CPA (because I know you have one), to make sure your allocations are in line with IRS standards and set a repayment level that is commensurate with your rate of growth and profitability.

Finance and Investing, Process Analysis | No Comments »

As a consutant, I have met many people who have been bitten by the "flipping" bug. They diligently watch all of the shows dealing with finding, restoring and selling distressed  or foreclosed properties. The have saved their money and now are ready to flip a house for huge profit. Unfortuntely, it’s not that simple.What the popular shows don’t tell you is you have to do your "due diligence" concerning a property before you purchase and begin the remodeling.

These steps include:

• Comparative market analysis
• Crime reports 
• School rankings
• Educational background of current residents
• Average income of residents

These are but a few of the factors that determine whether someone will purchase your home after the remodel.

Keypoint: If no one wants to live in the neighborhood where your property is, it doesn’t matter how good the deal is. 

As a real estate investor, I have owned several properties and have looked into "flipping" houses. Amazingly, as many houses as I have researched, I have not found one that has met the standard enough to have me purchase. There have been homes I made offers on, but they were over priced and were taken by investors who still own them to this very day. 

On several properties of interest, I had our team builder come out an assess the condition of the home and what it would take to repair and remodel. During one of the inspections he asked if I had ever considered building a house to sell instead of flipping. The point he made was even though I could remodel a home with new appliances, fixtures and landscaping, it doesn’t change the age of the house. (Eureeka!)

The undeniable fact about new construction is the buyer has the opportunity to be the first to live in the home and depending on which stage of construction they purchase, can choose paint color, carpeting, cabinets, etc. 

Building a new home in an established neighborhood gives you the benefit of an establish price range, stable residency and the ability to offer brand new features for the same price as the current offerings.

What is most amazing is it isn’t as expensive as you may think to build a home. The are companies that offer plans for all types of homes such as www.frankbetz.com. The key is finding a builder that is reputable, honest, insured, and you can see at least five homes of varying types he/she has built.

I have recently purchased property and we are about to break ground on our first "build for sale". I will be posting updates and photos as the process proceeds and we will see what happens.

Finance and Investing, Word to the Wise | No Comments »

In the United States, more than 90% of all start up businesses fail within the first two years. One of the largest reasons for this is undercapitalization. When developing a business plan, most owners include three to five year projections, unfortunately, few times do the actual business occurences match the amount of funds allocated. Unforseen circumstances have a way of intruding on the best laid plans and if a financial boost is not procured, can cause the demise of your business. Undercapitalization can be the result of not planning for failures or successes; I have met just as many people who had to close their business because they could not keep up with demand for their product, as those who failed due to improper marketing.

Recently I was made aware of a website where individuals can seek financial help from peers for reasons ranging from debt reduction to expansion of your business. Prosper.com is one of the most creative and easy to use finance concepts I have ever seen. The process is very simple, you join Prosper,  place a listing for the amount of money you need ($1,000 - $25,000), the amount of interest you are willing to pay (up to 29%) and ordinary individuals bid to loan you funds. During the process, you are assigned a letter designation for your credit score ( no one sees your actual score) and a percentage for your Debt to Income (DTI)  ratio. This allows potential lenders to view your listing and assess the amount of risk they are willing to take and the reward (interest) that is being offered by the borrower.

What makes Prosper so unique is the fact there are thousands of lenders and no matter how challenged your credit is or how high your DTI may be, you stand a better than average chance of being funded. Thus giving a small business owner the opportunity to expand services, increase inventory to meet demand, refocus marketing efforts to attract business or even hire a business consultant to improve overall business health (hint, hint). Since finding out about Prosper, I have done business with them and recommended two others who have begun the process. If you are interested in learning more, click the link below and feel free to ask me questions about my experience. 

Finance and Investing | No Comments »