Since most businesses require some type of investment to get started and since few people just have thousands of dollars sitting around waiting to be invested, the money needed to finance a company often has to be borrowed.

Although business debt is often what we leverage in order to begin or expand our business it’s something we have to manage wisely if we want to stay in business.  Many small enterprises are forced to close their doors when their debts outpace their income and their credit dries up.

A recent article on avoiding business debt offers some tips entrepreneurs can use to help keep their debt in check.

Collect Accounts Receivable
You have to spend money to make money. A line of credit allows you to spend the money to do the work before your customers pay you. One of the problems that small businesses face is that we’re so focused on landing the clients, completing the projects, and pleasing the customer that we don’t put enough emphasis on getting paid.

We assume that if we do all these other things right, the payments will come in.  The article suggests using PayPal and other web-based invoicing applications to automate the billing and collection process.

Manage Tax Receipts
This one is kind of a no-brainer, not much technique required.  The main point here is just to take the time to file business receipts and that it will pay off with nice deductions next tax season.

Prioritize Your Projects
How many times have you had a great idea late at night and rushed to implement it without considering the impact it had on your other current projects?  Entrepreneurs are constantly coming up with new ideas but we don’t have the time or money to chase them all at once.  If you can’t prioritize your projects you many end up losing focus and running out of cash before any of them are profitable.

Spend in Moderation
Pretend you’re back in college and living as frugally as you did then.  Every cent counts, buy only what you need during the startup phase to help ensure the cash flow will cover your debt payments.

Pay Your Credit Card Bills
Accumulating late fees and interest charges is a speedy way to eat into your bottom line.  If credit card expenses are mounting, consider transferring your balances to the Advanta Life of Balance card, it offers low rates on balance transfers for the life of the business card.

Managing Expenses
In order for your business to be profitable you have to figure out how to minimize your costs and have capital on hand to help you grow.  Every dollar you save in expenses is a dollar you don’t have to earn to cover costs.  The lower your expenses, the more quickly you can become profitable.  This week, Entrepreneurs Money took a look at managing insurance expenses by finding affordable health insurance coverage for your business.

Tax Payments
One of the largest expenses for any business is the tax bill they have to pay the government.  There are so many rules and regulations in the tax code it’s easy to make business tax return mistakes.  This list will give you some to watch out for.

Startup and Operating Funding
While it’s important to reduce costs, it’s just as vital to have access to funding for the money you must spend.  Running out of cash is one of the primary reasons that businesses fail.  Before you launch, it’s important to know how much money you’ll need to start and run your business.

One of the methods that many small businesses use for access to quick, short-term capital are credit cards.  Entrepreneurs Money reviews whether advanta has the best credit cards for small business and also where entrepreneurs can turn for funding if their business credit card application is denied.

One of the biggest obstacles to starting a new business, product, or initiative can be building up the momentum to get it off the ground.  One thing’s for sure, your venture will never be successful if you don’t start it.

Although maximizing profits is your goal, you can’t expect every new product or business to be profitable from day one.  Have you heard the phrase

“Ready, Aim, Fire”

My business coach uses an adaptation of that phrase that is useful at overcoming inertia and launching tests of new markets or businesses.

“Ready, Fire, Aim”

Obviously, the key component here is action.  Launch a quick market test, then analyze your results and aim for the sweet spot, if one exists. Until you have a product or service up and running, there are no profits to optimize.  Begin small, you don’t need to spend a lot of money to start your business testing.

As you track it’s success (or failure), you’ll see where the opportunities exist.  Once you have an income goal for your new venture, then you can tweak what you’re doing to aim for that goal.

American Express has partnered with Link2Gov and Official Payments to offer you the ability to pay your taxes with your credit card.  When you use a card like the Business Gold Rewards card, not only do you earn points for the dollars spent, you also get to hold onto your hard earned cash until your next statement payment is due.

Both sites charge a convenience fee but you may be able to use membership rewards points to pay the fee. Here are some of the taxes you can pay with your American Express card:

Federal

• Quarterly Estimated Taxes: 1040–ES
• Employee Withholdings: Form 941
• Unemployment Tax: Form 940
• Automatic Extension Payments: Form 4868
• Employer’s Annual Federal Tax Return: Form 944

Entrepreneur Zac Johnson covers some of the pros and cons of paying your taxes with a credit card over at ZacJohnson.com.

Of course, what small business owner wouldn’t jump at this chance?

Unfortunately, while it sounds good to many of us, the discipline and time required to delegate work and responsibility often times stops us from hiring help.  Although it would allow us to be less tactical, more strategic, and as a result more profitable, outsourcing tasks often times does not happen.

The Entrepreneurial Myth
Michael Gerber documents this scenario in his classic book, the E-Myth. He tells the story of an entrepreneur whose business won’t grow because she tries to take on all the necessary tasks herself.  He goes on to explain how using something he calls the “Entrepreneurial Model” allows business owners to make their enterprises competitive by focusing their attention on the strategic aspects of their market.

Said another way, the Entrepreneurial model has less to do with what’s done in a business and more to do with how it’s done. The commodity isn’t what’s important - the way it’s delivered is.

When the Entrepreneur creates the model he surveys the world and asks, “Where is the opportunity”? Having identified it, he then goes back to the drawing board and constructs a solution to the frustrations he finds among a certain group of customers. A solution in the form of a business that looks and acts in a very specific way, the way the customer needs it to look and act, not the Entrepreneur.

“How will my business look to the customer” the Entrepreneur asks. “How will my business stand out from all the rest”?

If you’re so busy focusing on the day to day, nitty gritty details you’ll never have time to ask the questions or do the research that Gerber suggests and your business will eventually struggle as a result.

Don’t get me wrong, the daily work must continue in order for the business to survive and grow, the key point is you don’t have to do all the work yourself.  You have to know what needs to be done and how to find the right people to do it.  This may not be obvious right from the beginning, in which case you may not be ready to outsource the work.

Where Should You Start?
As you work in your business, you’ll recognize the tasks that are most important to your business. Not only that, you’ll figure out which ones you enjoy and are good at.  You’ll also notice the areas where you struggle and could use help.

The easiest place to start outsourcing is probably in the areas you’re the worst at and like the least.  Think about what happens if you pay an expert to do work you’re not good at. They’ll likely perform the task faster and better than you. Then you’ll have extra time to optimize your current income, study your market for opportunities & threats, and build stronger relationship with your customers.  The benefits of outsourcing the work can outweigh the costs of hiring someone.

How Do You Know When It’s Time?
Your business will probably hit a point where you feel like it’s no longer growing. If you know you could bring in more income by improving certain portions of your business and/or expanding into additional opportunities but just don’t have time, that’s probably a sign you’re ready to outsource some tasks. 

It may not be the most comfortable decision you’ve made and it will take time to do it right but hiring help is vital the future success of your company.  I’ll talk more in later articles about how to find people to help with your business and how to define what tasks to assign them.

If the answer is yes, stop reading and go do something else productive with your time. 

Did you answer no? Saying no to income planning is basically saying no to money. What do you think?  Is it smart for any small business owner to say no increased profits?

Although it may sound a little silly when worded that way, not setting income goals for your business is literally letting money slip through your fingers. If you don’t know how much you need to make this month, how do you know what you need to do to get there?

Begin With the End in Mind
Have you ever heard of the business, organizational, and personal productivity consultant and author Stephen Covey?  Years of his analysis and observation yielded a list of habits that are common to highly effective people.  Beginning with the end in mind, Covey’s second habit, means “to start with a clear understanding of your destination”.

If you don’t begin each month with an income goal for your business, you are not optimizing your profits.  Having a goal doesn’t mean you’ll always hit it.  However, it does force you to create a plan to meet that goal.  Even if you don’t earn as much as you plan on in a month, if you track the steps you took and the results that you did see, you’ll be in a much better position to make that much money in subsequent months.

Income Planning Benefits
Let’s look at an example of how powerful setting an income goal should be.

Target Daily Income – $500

How in the world are you going to make $500 a day?  Lets dig into some more specific questions.

1) How much is a conversion worth in your business?  ($50)

2) What is your conversion rate?  (4%)

3) How many customers do you market to each day  (50)

Assuming the numbers in bold next to each question are your answers, you’re earning (4% * 50) * $50 = $100 a day

Suddenly closing the $500 day gap seems much more managable, right?  Well maybe not yet but we can see that we need to:

• Change or repackage what we’re selling to increase the value of a conversion
• Modify our sales process to increase the conversion rate
• Increase the number of people we market to

It’s near impossible to improve everything at once so our best bet is to focus on increasing just one of these at first. Now we can identify and take concrete steps towards increasing our income and reaching our profit targets.

Income Planning for New Businesses
So the next question might be, what if I don’t know my conversion rates or daily customer reach since I just started my business?  The answer is two-fold.

• Start doing something
• Start tracking everything

Of course the obvious first step for a new company is to open its doors and start making some sales.  Right away, come up with some best guess estimates in terms of your conversion profit, conversion rates, customer reach, and target profits.  Track everything in your business process and at the end of a short period of time you’ll be able to set reality based income goals.

What we often overlook is that our existing products, services, customers, and partnerships frequently have more left to offer our business that we’re not tapping into.  As entrepreneurs we constantly have our mind on growth and new ideas which tend to lead us away from maximizing the benefits of our current business.

Optimize Your Business
If you have an existing customer base that’s earning you an income right now you could probably see a big jump in income if you took the time to optimize your current business rather than wildly chasing every new opportunity that came along.

Tracking & Measuring
The key prerequisite to this income growth is that you have to be tracking and measuring the ways you bring customers into your business and how they create profits for you.

Once you know how much it costs to acquire and keep a customer, which of your offerings are most profitable, and which customers are most likely to buy, then you have a financial baseline.

This is where the small changes come in.  Since you’re tracking the details of how much you’re making and who’s buying, you can make small changes in your offer and test the results against your baseline.

Optimizing Your Income
Unfortunately chances are almost 100% that some of what you try will reduce your income.  However, chances are also high that some of what you try will increase your income. Since you’re tracking & measuring you’ll know what these changes are.

Get rid of the changes that don’t work and keep the ones that do.  Continue following this cycle of optimization and you’ll be able to increase your profits with the existing products, customers, and partnerships that you have.

So the next question is how much will it cost you to start your own business?  Startup costs are one of the first barriers to entry that discourage potential entrepreneurs from ever taking that first step.  We all know how it feels.  It’s hard to risk money up front without really knowing if you’ll earn it back.

The good news is, if you’re building a small home based business then startup costs are significantly lower than they are for a traditional company. Of course, you’ll still need some capital to get off the ground. Here are some costs you’ll likely experience as you begin:

• High Speed Internet Service
• Computer Costs (Purchase, Anti-virus & Security Software)
• Outsourcing (Website designer, Content Writers)
• Communication solutions (Skype, Toll free number)
• Finance software (Microsoft Excel / Quickbooks)
• Customer management / Newsletter Service
• Domain Registration & Web Hosting
• Legal & Setup fees
• Post Office/UPS mailbox
• Caffeinated beverages : )

We’ll cover cost effective ways to spend your money on all of these items. The key in the beginning is not to get too hung up on the financial risk since it is relatively small for a small home based business. Instead focus on finding the right solution for each product or service, the one that will help your business make the most money.

Visit the Small Business Summit hosted by Microsoft, March 24 – 27^th.  Some of the sessions that will be addressing small business finance are:

• How small businesses can navigate the ups and downs of the economy
• Discover accounting software that’s intuitive, powerful, and affordable
• Put your business and your life on a sound financial footing
• Financial management software can lift your business to the next level
• Financial solutions that work for a rock band can work for you
• Think you can’t afford robust financial management software?
• Find funding for your small business
• Raising cash for your company

Check out the program page to get an overview of the small business advice availabe.

Unfortunately, with any type of investment, you have to take on some type of risk in order to grow your money. If you didn’t, then we’d all be investing every penny and we’d all be millionaires, right?

Starting Your Own Business
So back to how losing $1000 could be the best thing to ever happen to you. I’m not advocating running out and blowing a grand on some foolhardy investment.  What I’ve done, and what I’m recommending, is that you invest your money to start your own business.

It doesn’t have to be a thousand dollars, the important thing is that you commit to building a business and putting money into making work.

Losing Your Money
So why do I talk about losing the money that you’ve invested?  Statistics show that the majority of new businesses don’t succeed.  They fail because they run out of money.  The capital they put in up front is gone, the business owner is either unable or unwilling to put any more money into the business and it goes belly up.

But that’s not where it ends…..

Do you know how many successful business owners went through several failures before finding what worked for them?  Behind every wealthy business person there’s usually at least one failure in their past.

Learning from Your Losses
The difference behind successful business people and ones that never make it is how they view the inevitable failures they suffer through.  Those that learn from the mistakes they made, adjust their strategy, and start again are the ones that will eventually find what they’re looking for.

Those financial losses they incurred are nothing more than investments in a business owner’s education.  The following scenario tells the story well:

A young salesman and his boss walk out of the conference room after the kid has just blown the sale of the year to their biggest customer.  Wild eyed and distraught, the rookie salesman follows his boss into the elevator and blurts out, “Sir, I’m sorry I choked in there, PLEASE don’t fire me.”  His boss grits his teeth, narrows his eyes, and barks, “Are you kidding me! I just lost a million dollars training you. I’d be crazy to fire you now!”

Although an expensive lesson, losing a deal or even your investment in a small business is really the first step to building your successful enterprise.