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Budget-Building Bothersome? Make It Beneficial Instead
If you generally find building your small-business budget bothersome, take heart. All you need to do is find a simple format that works for you, and you'll discover how useful that business budget can be in helping you efficiently allocate resources - including your own time.

It needn't be complicated. A budget targets expected business performance expressed as the revenue generated from the input of expenditures and time. Figures in a budget consider past performance, available resources, and market conditions, and the budgeted periods may be monthly, quarterly, or annual - whichever is best for you.

A budget's ability to evaluate a small business's performance works. Eventually. Initially it generates benchmarks that are little more than guesses; but by comparing actual results to budgeted projections, you'll discover what are reasonable profit margins and cash-flow requirements. Future spending patterns can then be fine-tuned to maximize revenue.

When revenue performance falls short of expectations, the cause could be the controllable input of expenditures; funds may need reallocating among various expense categories. Or perhaps the time frame for attaining projected revenue was not realistic given available cash resources.

This information is important. If revenue does indeed match and validate projections, you can identify the expenditures that were necessary to achieve it, and then repeat the success. As important, budget numbers for future periods will become easier to devise and more accurate. No more finding budget-building bothersome ... instead, it will become highly beneficial and useful in identifying those expenditures that worked - and those that didn't.

Mentoring Benefits the Mentee, the Mentor, and Their Company
A good mentor can make a difference in the careers - and lives - of their mentees. Call it giving back or preparing for the future: mentoring, when done thoughtfully, with respect and open communication, can be beneficial to both sides.

Here are some best practices for successful mentoring:
  • Seek out opportunities to help your mentee grow and learn.
  • Help him or her navigate the politics of the organization and the industry.
  • Provide constructive criticism.
  • Be a sounding board as he or she thinks through decisions and considers choices.
  • Offer perspectives, options, and alternatives your mentee might not have thought of.
Beyond career guidance, a mentor can also be a source of psychological support. The fact that you believe in your mentee, both personally and professionally, can boost his or her self-confidence and willingness to take risks. Being open-minded and patient shows respect. Be invested in your mentee's success, but maintain high expectations; you'll inspire him or her to shoot for the stars.

It is up to the mentor to establish the tone for all interactions and keep the relationship on track, especially when disagreements arise. But beyond this, the best mentorship is a two-way street.

As more millennial employees come on stream, the concept of mentorship, like so many other things in the office environment, will likely change. Millennials bring new approaches to replace the old, but the practice of mentoring may become even more important, albeit in a different way.

Some companies have recently implemented "reverse mentoring" programs, partnering seasoned executives with millennial employees to learn new tech skills and develop an understanding of this digitally savvy, socially connected generation. It's a relationship that benefits both - and the company they work for.

How to Patent the Next Great Idea - and Retire in the Sun
So you've come up with a brilliant idea and are now ready to turn it into a reality. But first, you need to protect your idea with a patent.

Actually, you can't patent an idea, but you can file a patent application as soon as it's sufficiently tangible to qualify as an invention.

For this, you'll need a plan for transforming your idea into an invention. Together, the idea and the development plan form what is known as a "conception."

How do you find out what kind of patent you should apply for? If you invented a new product or a new way to improve on an existing product, you can apply for a "utility patent." Most inventions fit into this category.

However, if you've developed a new design that will change the appearance (but not the function) of an existing product, you'll need a "design patent."

The first step is to conduct a patent search to ensure your invention has not been previously patented.

It's fairly easy to research a patent online, or you can consult a patent attorney or search expert.

If your idea hasn't been "taken," you're ready to finalize your invention, a phase known as "reduction to practice."

Now it becomes tangible and identifiable, either through the creation of a prototype or through a detailed description with illustrations, and you can file your application.

One caveat: more than half a million patent applications are filed annually, and few inventions prove successful.

Yours may be one; after all, you deserve your moment in the sun!

Understanding the All-Important Profit Margin
A key measure of the success of a small business is profitability. And an understanding of profit margin is necessary in order to assess whether you're on a trajectory to success, or not.

Profit margin is where you begin when you're shaping a complete business strategy, as it reveals input cost trends and the effectiveness of your pricing strategy. Net profit - the most commonly understood measure of your company's profitability - is determined by subtracting all business expenses from business sales. Therefore, the net profit margin is profit as a percentage of sales. To calculate, divide net profit by sales, and then multiply by 100 to attain the percentage.

It's all relative

Depending on your industry, your net profit margin might be 2% or 20%. Finding the average net profit margin for your type of business may require some online research, but it's not difficult; figures are generally available from institutional studies usually conducted annually.

The key is to scrutinize your company's profit margin in the most recent period compared to earlier periods. A rising margin is clearly a victory signal. Conversely, a declining margin calls for constructive solutions to stop the deterioration.

Impact of gross profit

However, you may want to get a handle on your gross profit margin before you take any significant steps. Gross profit is business revenue minus direct costs of the sales. A retail store, for example, calculates gross profit by subtracting the cost of items sold from the revenue obtained when selling them. Dividing gross profit by revenue results in the gross profit margin percentage.

A business providing services can also determine a type of gross profit by identifying the direct costs that vary with revenue.

If you sell various products or services, evaluate the gross profit margin for each category. If some of the things you sell incur lower gross margin than others, your resources are likely better spent by focusing on the most profitable areas. For example, you may want to rethink a service that generates substantial travel expenses by pruning them from your business offerings. This would free up resources for less costly products whose work is mainly conducted online.

Components of net profit

Once you understand gross profit margin, it's time to complete your analysis by looking at operating expenses. Net profit margin considers all expenses, including general overhead costs that are not directly connected to revenue generation. If gross profit margin is steady, but net profit margin is declining, overhead operating expenses are the culprits.

Calculate the percentage of expenditure categories relative to revenue. Start with the largest expenses; for many small businesses, these targets are rent and labor costs.

After identifying the types of expenses with significant changes when compared to revenue, you can decide whether action is required. Nonrecurring events can cause temporary spikes in operating expenses, which lower net profit margin. But a permanent increase in an overhead cost represents an ongoing cut in profitability. Adjusting an operating expense is generally the easiest method for restoring net profit margin.
Michele Ball
Perfect Additions
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Worth Reading
Don't Look for a Great Idea. Look for a Good Problem
By Greg Satell
Meaningful innovation comes from a great idea. And the best ideas result from solving a problem. In fact, the most innovative firms are the ones that actively look for problems to solve. And since times are constantly changing, there is a never-ending stream of new problems needing attention. Don't anticipate the future: "The truth is that it's more important to explore than to predict."

Jeff Bezos Explains the Perfect Way to Make Risky Business Decisions
By Julie Bort

Business Insider

Amazon CEO Jeff Bezos believes in making fast decisions. In a recent letter to stockholders, he explained that waiting for 90% of the information you need means waiting too long. That's his Day 1 philosophy. But it's not just about speed; it's about quality decision making and gaining commitment. Bezos may not agree, but this truly is information worth waiting for.

Fate of Businesses Rests in Their Ability to Evolve
By Paul Parisi

The Globe and Mail

Drawing attention to the dramatic speed of change, Paul Parisi, president of PayPal Canada, celebrates digital disruption and the creativity of companies providing new goods and services. Remain relevant: accelerate growth and evolve, with strategies listed here.

You and Your Accountant
Most small-business owners start out wearing many hats, but eventually there will be a time when the "accountant" hat no longer fits; you need more sophisticated financial help. Find out when, why, and how below:

Here are 21 ways an accountant can help:
21 Ways Accountant Can Help a Small Business Owner

Accountants aren't just for tax time. Find out about year-round services:
How Accountants Can Help Small Business Owners

Accounting professionals can save you money in the long run:
How Can an Accountant Help a Small Business?

Adding an accountant to your team? Here's what to look for when hiring:
Choosing the Right Accountant for Your Business

Handling the books yourself can generate a mistake or five. An accountant can help you avoid these:
Top Five Business Mistakes Your Accountant Can Help You Avoid
This newsletter and any information contained herein are intended for general informational purposes only and should not be construed as legal, financial or medical advice. The publisher takes great efforts to ensure the accuracy of information contained in this newsletter. However, we will not be responsible at any time for any errors or omissions or any damages, howsoever caused, that result from its use. Seek competent professional advice and/or legal counsel with respect to any matter discussed or published in this newsletter.
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