Not surprisingly, many small business owners make the same budgeting mistakes over and over again.  If you’re frustrated because yours never seems to work out, follow along and read about the most common budget mistakes—and how you can  avoid them.  Remember, creating a budget is important, but don’t…

…Be Overly-Optimistic

It’s easy to become excited about sales forecasts.  After all, if you didn’t think you had the best product or service on the market, you probably wouldn’t be in business, right?  But pulling a number out of the air, or developing your sales forecasts based on what you think will happen, will only set you up for budget failure.  Your numbers need to be based on cold-hard data.  Start with your past sales, and then take into account current market conditions, as well as new or eliminated competition.

…Consider it Just a Check in the Box

Too many business owners don’t realize just how a working budget can steer their companies towards profitability.  Instead, they create a yearly budget—either because they think they should or because their investors require  it—and then don’t give it a second thought.  But you should think of your budget as a guide, checking it against real-time numbers and then making adjustments as necessary.  This will allow you to chart your progress and guide your business based on projections in comparison to real data.

…Underestimate Expenses

Business expenses won’t always be stagnant, and the wise budgeter will plan for that.  For instance, if your lease is coming due, you’ll likely have an increase in rent.  Product costs may increase in the next few months due to an increase in gas prices and more expensive transportation.  In addition to being realistic on your costs, always keep in mind that you should reduce any expenses possible.  Are you paying too much for your credit card processing fees? How about your labor costs?  Shipping?  Use the budget making process to re-evaluate all of your business expenses and make cuts where you can.

…Forget Your Taxes

If you’re looking at your numbers pre-tax, you likely have a smile on your face.  Unfortunately, Uncle Sam has a claim to some of your money, and your profits are going to look a  whole lot different after you pay him.  Be sure to figure your tax requirements into your budget so you’ll get a realistic picture.

Finally, it’s important that you schedule your budget preparation just like you would any other business function.  Many people put it off until the last minute, and then because they’re so pushed for time, don’t truly reap the knowledge and benefits from it.  Instead, put it in your schedule and treat it like you would your best client.  After all, it just might be the one thing that increases your profits substantially this year.

Photo Credit

Here is an example of a really really bad deal that a relatively large ecommerce company had with Wells Fargo, their bank.  They were paying an effective rate of 4.8%, much more than what is reasonable for an ecommerce company.

Square’s application rules are more lax than those of a traditional merchant account, and the software/hardware is provided for free. All you need to get going is an iPhone and the card reader, an attachment they send you. However, Square’s rates for swiped transaction are 2.75% +$0.15. A competitive merchant account provider will charge about 1.58%+$0.10.

Here’s an interesting stastic from the TechCrunch article:

In May, Dorsey told us that of the roughly 30 million US merchants who make less than $100,000 per year, of this group only 6 million are currently processing credit cards. The remainder, or 24 million businesses, are all potential Square customers who are looking for a low-cost and simple way to process credit cards.

How do these 24 million businesses know that Square is the more cost effective option? An easy way to check is to use this easy Square calculator which lets you input values such as transaction size and monthly volume and visualize the price difference between the two options.

Many people asked him how he evaluates a new company. After all they are involved in everything from music to railroads to alternative fuel development and outer space travel. How do they decide which sectors and which countries they are going to invest in and what can we all learn from their decisions and mistakes?

The first step they take in assessing new business it to submit it to a “brand test.” For example Branson says they will never invest in a cigarette company or defense contracting. Life is too short, he says, we want to enjoy the experience.

These are the questions he asks himself:

What are the chances of shaking up the industry with the new venture? There is no point in entering a new market unless it provides the opportunity to shake up an industry.

What do people really want? Almost all of Virgin’s new ventures come about from thinking up a product or service that they believe people really want. Only if the new venture has the potential to change or shake up things will they investigate further.

So far, making money has not been considered. “I feel it’s pointless to approach investing with the question, “How can I make lots of money? We must bring in the numbers guys and work out some business plans.” No one will ever agree on exactly how to make money. The consultants will say your idea will work, while the accountants will prove that it cannot.

When it’s time to decide whether or not to go ahead, the decision must come from your heart. If you pursue your passions, your ideas will be more likely to succeed.

Always protect the downside. “I think it should be a guideline for every entrepreneur — or anyone involved in business ventures. For example, when we made the bold move of expanding from the music industry to the airline business, I set myself one condition: in our negotiations with Boeing, I stipulated that we could hand the plane back at the end of the first 12 months if people didn’t like our business. That meant that I could see whether people liked the airline, but if it didn’t work out, it wasn’t going to bring everything else crashing down. My colleagues at Virgin Records would still have their jobs and a company to run! We make sure we always have a way out if things go wrong. You have to protect your people. It’s people who make a company exceptional or average.”

If things don’t work out, don’t hesitate: take that escape hatch. That way, when all’s said and done, you will be able to gather your team, discuss what happened and then embark on your next venture together.

Image thanks to http://www.flickr.com/photos/79653482@N00/2326697247/

• Micropayments platform: This is a big deal since micropayments are a pain point for entrepreneurs and processors alike. Only huge companies such as PayPal or Amazon have the scale to offer micropayments, so the more entrants into the marketplace, the more competitive and better. PayPal is equating this platform to physically dropping a quarter into a machine…users will be able to purchase content with the click of a button, never having to leave the original website.
• Apps platform- The platform, now in beta, will allow developers to embed applications directly onto Paypal’s website. The idea is to help consumers and small business owners have enhanced ways to move money electronically.
• Business Payments- Secure method for sending and receiving payments between businesses for a flat fee (50 cents).

PayPal continues to lead the payments industry with innovative and useful payments solutions. We’ll be curious to see what other ideas they implement, and how these ideas will impact payments now.

Image thanks to http://www.google.com/imgres?imgurl=http://www.digitalmomblog.com/

It also plays a big role in marketing and sales, getting deals done, developing and maintaining long-term relationships with customers, garnering support from your peers and coworkers, selling your ideas, even getting ahead in your career.

But not all of us were born natural schmoozers (yours truly included) so I was glad to find an article from a natural. Steve Tobak admits to being a schmoozer. It comes easy to him, he says, and he takes it very seriously.

Here is what he has to say about the art of schmoozing: -

• Don’t BS. It destroys credibility and makes you look like an idiot. Don’t assume you are smarter than the other guy.
• It not about you, it’s about them. Connecting with people is about finding things you have in common. Even if your views differ on a certain subject but you are both passionate about it, is a ground for connection.
• People like to schmooze. They like attention, to be noticed, to engage. But most of us are shy and find it hard to get out of our comfort zone. Make the first step.
• Be open and genuine. Be yourself with all your charm and faults. Be real.
• Don’t overdo it. It’s the third biggest sin after BSing and trying to be something you are not.
• Be appropriate and don’t overstep your boundaries.
• Be respectful of people’s time. Time is a very important resource for small business owners.
• Don’t talk at people, talk to people and listen, listen, listen. People will tell you a lot about themselves if you really listen and are not busy thinking about the next move.
• Let yourself be schmoozed. Be willing to help other people first.

It’s good Karma, says Steve Tobak.

Image thanks to http://www.flickr.com/photos/23065375@N05/2235525962/

Here are three areas that small business owners should bear in mind when contemplating spending for the fourth quarter and for next year.

• Start-up expenses – If you start a business you can deduct up to $10,000 in start-up expenses. That doubles the amount you could claim before the new law. Any expenses from legal, advertising and promotions can be considered startup expenses.
• Capital expenditure – Businesses can deduct as much as $500,000 in expenses for fixed assets such as machinery, furniture or computers. This deduction is increased from $200,000 and will be phased out after the business is making more than 2 million in capital investment. It will affect investments made in 2010 and 2011.
• Bonus depreciation – Entrepreneurs who purchase new equipment for their businesses can write off 50 percent of such expenses this year and not phase it out over time.

Here is what has already been signed into law:

1. A New Small Business Health Care Tax Credit
2. A New Tax Credit for Hiring Unemployed Workers
3. Bonus Depreciation Tax Incentives to Support New Investment
4. 75% Exclusion of Small Business Capital Gains
5. Expansion of Limits on Small Business Expensing
6. Five-Year Carryback of Net Operating Losses
7. Reduction of the Built-In Gains Holding Period for Small Businesses from 10 to 7 Years to Allow Small Business Greater Flexibility in Their Investments
8. Temporary Small Business Estimated Tax Payment Relief to Allow Small Businesses to Keep Needed Cash on Hand

Read more about it here and here.

This is a guest post from Natasha Murashev,  the author of PsychWorld.com, a digital publication focused on applied psychology.

The key to a successful business is passionate employees. Yet, in the day to day hustle, creating an inspiring work environment might not be on your list of top priorities. It should be! Happy employees = Happy Customers = More Money for Your Business.

Consider the results of research conducted by psychological scientist James K. Harter of Gallup, who analyzed data from more than 2,000 business units (retail stores, factories, sales offices, etc…) of ten companies. Harter found that employee perception of their work environment has a big impact on the success of the organization as a whole. When employees have a positive perception of their workplace, the organization is able to retain its employees, increase customer loyalty, and perhaps most importantly, increase their financial profit. The data shows that employee perception of the workplace affects company success more than the company success affects employee perception.

So how can you increase employee satisfaction? One of the simplest things you can do is give employees control over their work space. In a series of psychology experiments, University of Exeter researcher Dr. Craig Knight found workers who had the most control over their work environment were happier and more motivated in their jobs that those who had no control over their space. Workers in these “empowered” work spaces were 32% more productive without any increase in errors than those who worked in corporate standardized office spaces. Employees who were able to dictate the design of their work space also felt physically more comfortable at work, identified more with their employers, and felt more positive about their jobs in general.

So let your employees choose which plants or pictures should be displayed in the office. Or, even better, consider allocating a small office decorating budget and let your employees have some fun with it. Also, if your business allows, trust your employees to work during hours that are most convenient for them instead of the traditional 9-5. Have you considered letting employees bring pets to work? These small concessions on your part will pay big returns to your business.

For more great ideas on great company culture, check out the infamous Netflix presentation on company culture.

Image thanks to http://www.flickr.com/photos/76678833@N00/2387707860/

With the global recession tightening banks’ ability to grant loans, entrepreneurs in the US have found access to capital for their business extremely limiting. As a result, Kiva, a US company which pioneered crowdsourcing international microfinance, made a controversial move in June 2009 of offering microfinance loans to US applicants. This sparked a massive controversy not only because one side believed the US did not qualify under Kiva’s mission statement as a nation receiving microloans, but also because another side simply did not believe the kind of poverty microfinance institutions aim to uplift exists in the US.

Results from Kiva’s move show that US lending brought in new money to the marketplace, new users, and more engagement from existing users. To grow the initiative, Kiva is thinking big by partnering with Visa. The partnership’s goals are to bring microfinance awareness to small business, and develop Kiva’s platform to support more US small business. A study will also be launched in order to address the dearth of research regarding the role of microfinance in the US.

As income inequality reaches unthinkable rates in the US, there is no reason why efforts such as Kiva’s should not be put in place to empower the nation’s impoverished. With the US government spending double the amount of the second highest nation (the UK) on foreign aid (over $25 billion), maybe more attention should be given to the more than 14% of the US population which is below the poverty level.

Although international efforts are fiercely critical and the US’s role as a first world country demands significant attention given to helping other nations, it is important to look at troubles at home.We applaud both Kiva’s grassroots efforts and Visa’s use of corporate power to lessen the plight of impoverished entrepreneurs and spark small business growth in the US.

What do investors look at before they decide to invest in your business? Not only the idea, probability and market share. They are looking at you, the entrepreneur. What do you bring to the table, how do you take advice, what you admit to knowing, and mainly NOT knowing?

An interview with Catherine Mott, the CEO and founder of BlueTree Allied Angels in Wexford, Pa., raises some interesting points. BlueTree is part of a growing trend of angel investors who organize and form groups to make better investments.  BlueTree Allied Angels, for example, invest $250,000 to $500,000 in a single business and get 20%-30% equity.

Here is what she had to say from the other side of the table:

• She is looking for someone who is “coachable”. During the meeting process, which includes five or six meetings with the start-up team, she is looking for a person who takes advice because they know and understand there is a lot they don’t know.

• Technology is not what makes a company successful, the people do. The entrepreneur needs to choose the best people to work at their startup, and compensate them fairly.

• She is looking at the management team. It scares the investors when they see only engineers in the room and they’ve made one of them vice president of sales. They need to do their analyses and admit they need help is one or more aspects of their business.

• If there is no management team, there should be a group of advisers or board members. Some people the CEO can turn to for advice.

• They prefer to invest in their own backyard with a two hour driving range so they can be hands on.

Read the full interview here.

Image thanks to http://www.flickr.com/photos/22965089@N00/32325828/