Free Small Business Tax Return Help For Small Business Owners

business tax return

In order to ensure the accuracy of your small business tax return, it is important that small businesses learn how to catalog and report their business expenses. For most small businesses (especially those that do not have a full-time accountant on hand to manage their finances), efficiency is also important when managing and recording expenses.

Here are some tips to help you efficiently manage your business expenses so that you have an easier time reporting your expenses when tax season times around.

Develop a system to cataloging information

When it comes time to managing your records and preparing for a business tax return, having an efficient cataloging system can go a long way in helping you stay organized and, ultimately, efficient. Many small business owners can effectively keep track of their expenses, income, and cash flow using a basic Microsoft Excel spreadsheet. The benefit of using an Excel spreadsheet for managing financial records is that you can customize the spreadsheet to suit any possible need or preference you have. However, in order to be most effective with your spreadsheet design and use, you may want to take a course in Excel to ensure that you know how to use the software optimally.

While this is free tax help, not everything out there will be free. QuickBooks is one of the most popular financial software applications – especially among small business owners but will cost you a bit of money. QuickBooks also links to many banks, making it easier for you to capture and record your banking and credit card information with just a touch of a button. QuickBooks can also be used to easily manage invoices, payments, customers, and other common financial tools that many small business owners use on a regular basis.

Old-fashioned ledgers are still effective methods of capturing information and cataloging expenses. Unlike computer software applications, the ledger system does not provide the flexibility you may want when it comes to moving information around or adjusting your records. Therefore, you may have to be comfortable performing manual calculations and staying organized with your results when you use a ledger system.

Know your business tax return categories

When you file your business tax return, you will be required to state the amount of your expenses based on categories. For example, your office-related expenses will not be recorded in the same place as your professional fees, travel expenses, and others. Therefore, if you have never seen a business tax return form before, you may want to take a look at one so that you can get a better idea of what expense categories you may want to create in your cataloging system.

Common categories used by small businesses include:

Office expenses – these include office supplies, furniture for your office, and any equipment you may buy or rent

Building expenses – these include rent, facility fees, utilities, and anything else you may pay for that is directly related to the building structure itself. If you have a home office, you’ll deduct a portion of your mortgage and overall home expenses that is relative to the percentage your home office occupies in your home.

Repairs and maintenance – these are different than building expenses. Repairs and maintenance items may include installing a new light fixture, or items that you’ve purchased to maintain your office space.

Commissions and wages – if you have employees that you pay, be sure to keep track of all payments made to them.

Benefits – benefits are different than commissions and wages. Benefits include employee plans, retirement plans, and any pensions you may have set aside.

Professional development – this is where you keep track of any continuing education efforts, including conferences and classes related to your business.

It’s important that you speak with your accountant for more information about categories that may specifically relate to your business. Just about every small business should use an accountant to ensure that taxes are filed properly.

Keep records however possible

In addition to the record-keeping system you develop either on your computer or in a ledger, it is important to keep all receipts and paperwork related to those records. These receipts and paperwork will not only augment the quality of your record-keeping to help you remember what your payments were for, but they will also be requested by an auditor in the event that your business is ever audited.

Keep paper copies of all of your invoices, receipts, bank deposit slips, cash register receipts, credit card charge clips, and anything else. It may also be helpful to you if you take notes on your records. For example, if you take a client out to a meal, that meal becomes tax-deductible. You may want to include a note on the receipt for the meal in order to jog your memory when it comes time for you to tally your receipts and expenses.

Small business owners need to be sure that their records are not only complete, but that they are as accurate as possible. Not only is accuracy important for your own finances, but if you are ever audited, you may be penalized if you cannot prove that an expense was for a business-related purpose. Therefore, it is wise to take the time now to develop your record-keeping system and habits so that you can be prepared for an easier tax season.

Good luck and we hope you found some value from this free tax help!

Determining Your Start Up Capital

Estimating start-up capital for a business should be done strategically. Every year, thousands of businesses go under because of the failure to determine at the outset how much it costs to run a company effectively. In today’s economy, it is more important than ever to know the green required to be successful. Read more to determine how best to estimate the start-up capital your business will require.

Step 1

Learn the industry. Collect resources from the library, online and local business centers to gain information about what is needed to operate the chosen business. Keep in mind that legal and accounting fees may vary, and so you should contact several law firms and accounting offices to learn how much per month will be required to handle potential payroll and legal agreements. According to D&B, “In order to determine how much seed money you will need, you must estimate the costs of your business for at least the first several months.”

Step 2

Determine how to cut costs early in the business operation. Equipment can often be leased instead of purchased, which could be cheaper depending on the use. Also, check prices from different sellers and take the average of the costs to establish an accurate expense calculation. However, if there is only one option, always round up it to the nearest whole number. This will help ensure that there will be enough money.

Step 3

Build relationships within the industry to learn what others pay. Obtain deals in writing, because they may be used as quotes for accurate expense calculations. Collecting quotes for all professional and major purchases will be necessary because you might not be able to find estimates online for your specific industry. Going to the primary source is always best when starting a new business for the most accurate costs of operation.

Step 4

Include any potential taxes and miscellaneous fees to ensure that nothing is left off the spreadsheet. These numbers will have to be estimated based on the current tax year based on IRS forms found within the IRS.Gov website. Local and state taxes may be found on most county websites in the business section. As for the spreadsheet, look for templates online from reliable sources, such as the Service Corps of Retired Executives (SCORE), which offers free or inexpensive guidance to business owners all over the country. Asking for historical advice from more experienced entrepreneurs may be very useful for professional fee calculations and some tax estimations.

Benefits Of Starting A Joint Venture Business

While having your own business can be very rewarding, it can also be isolating and frustrating at times. When you are in business as a sole-proprietor you can sometimes feel like you live on an island and are responsible fully for the successes and failures of your business. One of the best ways to alleviate this and grow your business is to form a joint venture with another small business owner. Together you can market your services or products to both of your established clients, and new clients as well.

A joint venture can allow your business to grow and expand in ways that other marketing may or may not succeed. Say for example you are a successful Mary Kay Representative. You know your business, market your business well, but are in a slump for new customers. You have an association with another business owner who sells Pampered Chef items. She is feeling like you, she is marketing but needs in influx of new customers and referrals. You could do a joint venture where you provide both home parties at the same time, or where you recommend each other to your respective lists of clients. Some of your Mary Kay clients would be happy to host a Pampered Chef home show and some of her Pampered Chef clients would be happy to hose a Mary Kay home show. By joining forces you both gain new clients but don’t eliminate each other’s business in the process.

If you can successfully form a joint venture with one other business owner you will soon find there are many others out there interested in doing something similar with you. This can help your business grow exponentially because you continue to build your customer base and add to it with each joint venture that you form.

Another idea for forming a joint venture is to form a partnership as your business model. Creating a joint venture business, or partnership, with another person allows your business to have another person involved who cares about your business and also who can help balance out the business in areas where you may not be strong, but they may be. A joint venture can allow your business to have the best of two people. This can be a very successful business model. You perform the services to the business where you are the strongest, and allow the person you partnered with to do the functions in the area where they are the strongest.

If you have an online business one of the easiest and best ways to make it grow are through joint ventures with other online businesses. Having a successful online business relies heavily on being able to reach a large audience of people and marketing your goods and services to them. Each online business reaches it’s own group of people each day. By forming joint ventures with other online business owners you can reach both your target group of people and those of the other businesses you join forces with. Say you have a blog that you use to earn money. You can find another similar blog and swap posts or links with them. This allows you both gain exposure to each other’s visitors. From this you will gain new regular readers of your blog and the other blog owner will receive more regular readers as well. You both can win in this scenario.

Creating joint ventures can be a very successful way to both market your business and gain new customers at the same time. You may want to join forces with others with a similar business or one that will not compete with your business directly as in the example presented with Mary Kay and Pampered Chef. Online joint ventures can be a great way to expose your online business to a larger audience and thus allow you to form more joint ventures over time with even larger sites with more readers.

The only way to have a successful joint venture is to put yourself out there and ask others if they are interested in participating. Most business owners would probably jump at the chance but have not been asked. Put some time and effort into planning a joint venture and you will see exponential growth of your business.

Finding Success As A New Business Owner

The key to being a successful business owner is something that involves time, effort, and understanding of the field you are in. But those are just minor things in the big picture. Here are six things to know when running a business on your own and how to be successful at it:

1. Those that are highly successful business owners are the ones who think like one. Most people that get out in the real world are employees, and they think like one as well. No matter where you received your education at or what degree you have, you are taught to go out and do the best you can to get a good paying job. Basically, the people teaching you are employees themselves, and they teach you how to be a good one. Think about it. Do most of you really think that teachers out there are going to show you how to run your own business when they work for someone as well?

I am now a current business owner myself on-line, and the first thing I had to do learn was to think like a true business owner. Trust me, it if not an easy transition because we are all programmed to think a certain way throughout our lives, and transitioning from an employee to a business owner is very hard to do but not impossible.

2. You have to have the right person that will mentor you on how to think and grow into a business owner. Without a good mentor to show you the way, I can tell you that you are highly unlikely to make it. It takes a business owner mentality to teach someone how to think just like they are teaching you. Only a business owner can teach another business owner how to be successful. No business owner who thinks like an employee will ever make it.

3. Another thing that helps you become a successful business owner is the people you hang around with. If you hang around people who think like employees, you will turn into one yourself. Hanging around successful people and/or business owners will bring success to you. It is like the old saying that if you put one crab in a bucket, then it can still get out. But, if you put two crabs in the bucket, the second one will hold the first one down. If you want to get your own business going successfully, then you can’t associate with people that will hold you down from accomplishing what you want in your business. Where you go in life is determined by who you associate with, and don’t ever forget that.

4. One of the biggest things to being a successful business owner to me are those who are prepared to fail, and can accept it. Every single successful person on this planet has failed in being successful. Michael Jordan is arguably the best basketball player to ever live. In my opinion, he is. But, many times in his career, he failed on the court. He didn’t always make the game-winning shot at the end of the game to give his team the win. He didn’t always lead his team to an NBA Championship. The one thing that made him successful is failing many times over, and that is why he is who he is now.

What is the opposite of success? This was one of the first questions I was asked when I got in the business I am in. Like most people, I said the answer was failure. My mentor said the same thing when he was asked before getting in the business. Then he told me about how many people in the business failed numerous times and have now made it to where they are completely free to do what they want to do. Before he even answered the question for me, I then changed my answer to quitting. Again, that goes back to what I was saying before about how we were all programmed to think that the opposite of success is failure. In a technical sense, that maybe true. But in running your own business, nothing could be further from the truth. Remember that failure is a huge part of being successful, and you have to be ready to accept that or you likely will be quitting not long into it.

5. You also have to act and dress professional when talking to others about your business whether they are family, friends, or potential customers or business owners. Some fields don’t require you to dress professional like land scaping, construction, or something related to those fields. But being professional is very important. The way you present yourself is how people will view you. So it is important that you know when it is time to be a professional business owner and when it is time not to.

6. Always know what you want in life. What are some of the dreams you have? Write them down, and post pictures of the places that you want to go. If you want a luxurious car, then post a picture of one as well. You have to know what you want, and be able to see the big picture in front of you.

All those things I just talked about are what is going to get you to be successful as a business owner. But the whole key starts in your head. Thinking like a business owner is the most important of all of them, and that starts with who you associate with. Again, no one thinks like that when they start a business. But you have to grow into one and be prepared for the failures that come with running a business of your own. Besides, wouldn’t you rather show or mentor someone on the failures of the business that you learned rather than see them make the same mistakes anyway? Criticism will always be there in anything you do. If you can’t handle that, you will not make it.

In short, it is very tough and time consuming to be a successful business owner. So many things are a huge factor in whether or not you can make it in the business you are in. But, no one is ever successful at anything by quitting. You have to change the way you think, or you will not make it as a successful business owner. All of these things are essential in becoming a successful business owner.

Ideas To Help Get Your New Business Off The Ground

Every year millions of new businesses are born to people hoping to realize their dreams of owning their own business. The harsh reality is that many of these businesses fail within the first year or two. The reason isn’t so much that they business owner isn’t good at what they do; it is more an issue of not starting their business correctly or growing it properly. Here are seven steps you can use to build a successful business that will last and prosper.

Step 1 – Get Organized. The first step in creating a lasting, successful business is to organize yourself and your thoughts. You first need to think about what kind of business you are suited for and can successfully create and then run for the long-haul. What are your skills and talents? What do you want to do? What comes easy to you? What will you need other people’s help with? Think long and hard about your business and incorporate Step 2 (Determine Your Budget) into your thoughts.

Step 2 – Determine Your Budget. Most people given a lot of cash and an idea could build just about any business they wanted. However, the reality of life is that for most people cash is a limited commodity. While most of us can dream big, financing those dreams takes a bit more creativity. The second step in starting a successful business is to determine the budget you have to work with and how you will spend your money on your business. It is vitally important that you build a realistic budget for your business venture and then stick to that budget.

Step 3 – Research. An important step in starting any business is to research. You will want to research your competition, your suppliers, and your market. Nothing is better for your new business than having done as much research as possible.

Step 4 – Write a Business Plan. Vital to any successful business is writing a business plan. Most people associate a business plan with attaining financing for their business, however you need a business plan even if you are financing your own business. A plan is simply a map for your business. How will you know where to take your business without a map? Included in your business plan should be your business objective, a mission statement, your budget, your market, your prices, etc…

Step 5 – Write a Promotional Plan. Just as it is vitally important to have a business plan, it is also vitally important to have a plan to promote your business. Promoting your business is what will bring in revenue. Planning how you will promote is a very important step in building a successful business.

Step 6 – Obtain a Business License. To start a business you will be required to obtain a business license from your local government offices. You will likely also need to file a fictitious business name statement in your local newspapers. This is generally required in order to be able to do simple things like obtain a bank account or credit in the name of your business.

Step 7 – Market, Market and More Market! The only way to get your business started is to go out and market it and then market it some more! No one will do business with you if they do not know your business exists. Marketing through press releases, flyers, business cards, and networking are all good ways to start.

Starting a business can be very exciting. Take the time to do it right and it can also be profitable. I hope these seven steps help get you started in the right direction.

Guide To Creating A Business Plan

Starting any successful business requires taking the time to write a well thought out and professional business plan. Think of a business plan as a roadmap for the start-up and success of your business. This roadmap will guide your business in its start-up phase and then on to its success and longevity. By taking the time to create a professional business plan you can help to insure your business gets started off on the right foot and has a plan in place to grow and prosper.

I have put together nine easy steps to creating your business plan. Follow these steps and you will be well on your way to a good solid business plan and a successful business.

Step 1 – Concept of Your Business. What is the concept for your business? Who are you? What will your business sell or provide? Why do people need your business or its products? This section of your business plan should be an overview of your plan and an overview of your business itself.

Step 2 – Vision or Mission Statement. Take the time to think about your business and form a vision or mission statement. This statement should focus on your business and the goals it has. You want a vision and mission statement which you can share with others to convey your business goals and beliefs. You will want to take the time to complete this step and will want to use your vision or mission statement on your business website and other promotional materials. All successful businesses have a strong vision or mission statement.

Step 3 – Market Analysis. For this step you will want to consider the target market for your business and what that market currently looks like. You also will want to consider what your target market may like in the future. Who will you market to? How stable is that market? How will your market change over time? Will your business be able to change with your market? The market analysis step is vital. You have to know who your market is and that they are interested in what you will provide.

Step 4 – Competitive Analysis. Competitive analysis is conducting research into your competitors businesses and seeing what they offer versus what you will offer. You will want to take the time to discover their price structure and how your prices will compare. You will want to look at where their businesses operate and how they conduct their business. How will you compete? Where will you compete? What will you do differently? What will you do that is similar? Can your prices compete? This step in your business plan is very important.

Step 5 – Strategy. For this step in your business plan creation you will want to evaluate the strategy your business will use to start-up, market and grow as a business.

Step 6 – Products and Services. What products will your business sell? What services will your business sell or provide to its clients? What will they cost? Where will you sell them? How will you sell and support them? This step is all about the “meat” of your business – your products or services for sale.

Step 7 – Marketing and Sales. For the marketing and sales section of your business plan you want to show how you will market your product. Where will you advertise? How will you advertise? Who is your target market and where can you expose your business to them? Will your business have a website and market online? Consider all of your marketing options. Think outside the box a bit as well.

Step 8 – Business Operations. The business operations step in your business plan is to outline the parties involved in your business, where your business takes place, your address, your phone number, your website, etc…

Step 9 – Creating the Financials of Your Business Plan. Step 9 is probably the most important step in your business plan. This step will include the following documents: a cash flow projection, a profit and loss projection, a balance sheet and general statement of your business’s financial affairs.

Taking the time to complete your business plan using the steps above is a good start to the success of your business.

Cut Expense From Your Business Day To Day

Running a business is a costly endeavor whether it be a brick a mortar shop or an online e-commerce website. In order to maximize profit you need to minimize expense. It’s an easier task to complete than you think. The following are several tips on how to reduce the amount of money your business is putting out.

Office supplies: Regardless of your type of business, you will need basic office supplies. First of all, shop wisely when buying supplies from computers to paper clips. Many office supply stores offer promotional sales and coupons, both online and off. When shopping online, consider buying in bulk to qualify for free shipping (most offers require a minimum purchase value such as $50, which is usually pretty easy qualify when buying for your business). When shopping offline, pick up a store circular and consider buying the cheaper advertised promotions instead of your usual items. Also, many office supply stores offer frequent buyer rewards cards, so sign up for one and be sure to use it. When you are buying larger items such as a new computer, shop online for refurbished and used items. There are significant savings to be had without sacrificing quality. Just be sure to read all the fine print on the condition of the item you are buying.

Postage: A common expense of businesses is postage. You can save on postage for signing up for free online bill pay through most financial institutions. This may also help you to stay more organized with your bills. If you send packages through your business, get to know the shipping options and compare between shipping carriers. You may be surprised at the differences and save a significant amount when you switch from your current shipping methods.

Advertising: While advertising is essential to any business, it is generally costly as well. There are many free and low cost ways to advertise. A local newspaper ad is usually less expensive than a regional newspaper ad. It may even cause people who haven’t noticed your business before to drop by. You may want to swap out between the both on a regular basis to save money while maintaining your advertising presence. Cable TV commercials are becoming more affordable. With adequate camera equipment more commonplace than ever before, you could hire a local high school or college student to shoot the commercial in exchange for the experience on their resume. You may find a commercial to be more profitable than a newspaper ad and not much more expensive, thereby being the more economical way to go. Online advertising is huge, but at times a shot in the dark. Try sites that are popular to your cliental, but start out small. Don’t pay for their most expensive advertising package right off the bat. If you don’t see an increase in sales within a month, don’t waste money and try advertising somewhere else. There are also many ways to advertise online for free. There are plenty of websites that allow free basic advertisements. It’s worth a shot. You could even put any of your employees to work on locating free online advertising during slow customer hours. Furthermore, politely ask your customers or clients for their e-mail address so you can maintain an e-newsletter for easy and free advertising.

Time is money: Save money by keeping organized to save time. Consider using a computer program to manage the book keeping. Many banks now offer free software downloads to help you manage your accounting that can also be used with their financial services (usually at a small fee of course, but could be worth it for the saved time). Also, keeping careful inventory tabulations, keeping the merchandise organized, and keeping the tools from your trade in order can save precious time when it matters most, when you are assisting a customer.

Simple tasks such as these will certainly cut down on many unnecessary business expenses and put more money into your pocket!

A Guide To Understanding Divestment

Divestment in legal terms means to strip one’s investment from entity. Whereas in financial and economic terms it is also called as divestiture. This means the reduction of one’s asset to meet social or financial goals. In the layman language we can also call it as the opposite of investment.
Divestment for Financial Goals

The sale of an asset for financial goals could be more appropriately termed as corporate strategy. Here the company gets into the procedure to sell its business unit. Thereby, it invests or focuses on much more promising and profitable venture in the market. This change in the corporate strategy of a firm, by opting for this arrangement, to focus on a particular subsidiary of their core business is called as divestiture for financial goals. This option generally occurs as the spin-off of the existing business, which means to form a new organization or entity from the larger one. The best examples for such spin-offs are television series based on the pre-existing ones or as a new company formed from a university research group. This term can also be said as sub-series. The other instances which give birth to divestiture for financial goals are before the approval of merger by the Federal Trade Commission. A company can divest its assets to wholly owned subsidiaries.

Here we can take the example of the largest, and likely most-famous, corporate divestiture in history which was the 1984 US Department of Justice-mandated breakup of the Bell System into AT&T and the seven Baby Bells.

Divestment for Social Goals

This term refers to the political or social policy that adhere the investors from reducing their investment in firms, industries or countries.

The most prominent examples that reflect divestiture for social goals are:

– The withdrawal of American firms from South Africa during the 1980s due to Apartheid.

– Discussion over whether it is ethical to invest in companies that sell tobacco.

– The recent selling or commitment to non-purchase of assets implicated in funding the government of Sudan, in acknowledgement of acts of genocide perpetrated in the Darfur conflict. This divestment has taken place both at the state level (including Illinois, New Jersey, Oregon, and Maine) and at many American Universities, notably Harvard University, Stanford University, Dartmouth College, Amherst College, Yale University, Brown University, the University of California, the University of Pennsylvania, and Brandeis University. The Sudan Divestment Task Force has organized a nationwide group which advocates a targeted divestment policy, to minimize any negative effects on Sudanese civilians while still placing financial pressure on the government.

The drawbacks and criticism faced by this agreement to divest for social goals are because of a group of activists who hold the opinion that divestment campaigns are based on a fundamental misunderstanding of how equity markets work. Here John Silber, former president of Boston University, has reached to the conclusion after extensive observation. He has stated that “once a stock issue has been made, the corporation doesn’t care whether you sell it, burn it, or anything else, because they’ve already got all the money they’re ever going to get from that stock. So they don’t care.” Therefore boycotting a company’s product could badly affect the business.

Many widespread protests and agitations took fast trend in some cases like;

On the 27th of April 2005, The Rawalpindi-Islamabad Citizens Peace Committee of Pakistan had called for a total boycott of US and British products to protest declaring war on weak nations. Their release cites: “The local chains pay their American principals a royalty of 5 % on each sale for using their brand names. It is this 5 % that goes to bloat the coffers of the US corporations most of whom are major contributors to the state of Israel. Thus, consuming American fast food goes to strengthen the US and Israeli armed forces, US aggression worldwide and the Israeli atrocities on the Palestinians”.

In 2002 to 2004 pro-Palestinian student groups of many colleges and universities had petitioned their schools to divest from companies with ties to the Israeli military. But as per knowledge up to date every university divestment campaign has been unsuccessful in swaying the schools’ administrations’ investment decisions. Former Harvard President Lawrence Summers famously called those campaigns “anti-Semitic in effect, if not in intent.”

It has also come into light that divestment campaigns have brought the notion of “socially conscious investing” into the public eye. Due to such a philosophical notion, investors intentionally invest in companies whose policies they believe to be especially aligned with their own interests, for instance, supporting environmental protection schemes or avoiding businesses that indulge in the alcohol, tobacco, or pornography industries.

This courteous act of divesting from certain sectors of the economy, and investing in others sectors, such investors may intend to provide a market-based incentive for corporate social responsibility.

Further studies reveal that divesting for the use of a concerted economic boycott, with specific emphasis on liquidating stock, to pressurize a government towards policy or regime change. This procedural term was first tested in the 1980s, most commonly in the United States, to refer to the use of a concerted economic boycott that had been specially designed to pressurize the government of South Africa into abolishing its policy of apartheid. The term has also been applied to actions targeting Northern Ireland, Myanmar, and Israel. The boycotts of Israel, as the series of economic and political campaigns against the State of Israel, in the course of the Arab-Israeli conflict and the Israeli-Palestinian conflict also comprised the economic measures such as divestment. This motion mainly comprised a consumer boycott of Israeli products or businesses that operate in Israel; a proposed academic boycott of Israeli universities and scholars; and a proposed boycott of Israeli cultural institutions or Israeli sport venues.

Financial Management Basics For Businesses

Businesses obviously can’t be run well without budgeting and financial management. If you’re looking to learn more about how a business sets up a budget and manages money, here are the basics.

First, there are two kinds of operating budgets. The first is a sales budget, which is basically a motivational tool, stating how many sales your company or department hopes to achieve. Expense budgets cover operational costs. It is easier to cut an expense budget than up the figures of a sales budget, which can be unfortunate for employees. Discretionary items like travel, office parties, furniture, and staff perquisites can easily be cut to increase a profit margin.

Each department in a company usually has a budget, in addition to a company budget. Cash flow reports, which compare the beginning total of assets for the present year and the beginning totals for the previous year, can help you see if a company is making progress. Budgets are tracked by accounting reports, which also comes in two types: a balance sheet and an income statement (which measures profits and losses).

Simply, a balance sheet has two columns. The left column lists assets like checking accounts, money market accounts and accounts receivable. The right column lists current liabilities, like accounts payable, payroll taxes, and owners equity (earnings and stock). The idea is that the totals for both columns are equal: assets = liabilities + owners equity. If you are looking only at balance sheets to see how a business is doing, you will need to see at least two to get an accurate picture.

An income statement gives an itemized list of income sources for a given period, usually a year. It also provides an itemized list of expenses for the time period. At the bottom of the sheet, the expense total is subtracted from the income total to acquire the net profit. The net profit is the famous “bottom line”. If it’s a positive number, the company is “in the black” and doing fine. If it is a negative number, the company is “in the red” and lost money.

There are other ways to measure how a business is doing, by using ratios. They give a more complex analysis than basic budget or balance sheets. If you only want a very general idea of how a business is doing, you probably will get a good idea from balance sheets and income statements. These can be useful for managing personal finances, as well. A monthly balance sheet, listing expected bills on one side and the actual amount paid on the other, can help you see if you are staying on track.

Reducing Waste With Lean Methodology

One of the main objectives of the lean manufacturing process is to reduce the amount of waste that is created in the fabrication flow. It doesn’t matter what the product is, if you’re wasting raw materials and time while you are filling your customer’s order, those are things you will probably never get back. More waste means less efficiency. Less efficiency translates to more costs. More costs means less profit. Well, you get the picture.

It really doesn’t matter whether your job is manufacturing tractors, building bicycles, or baking cupcakes, having the right amount of material on hand, and coming up with a method that gets the job done with the least amount of effort in the least amount of time is always to your benefit. A lean manufacturing method is one that recognizes those steps that do not add value to your job, and eliminate them to the greatest possible extent.

Let’s talk about some different kinds of waste, and cite some simple examples.

1. Excess production. If you have an order to deliver 24 cupcakes to your customer, you will probably want to make some extra ones, in case one is dropped on the floor while you are icing it. If that extra one keeps you from having only 23, requiring you to start the entire baking process over again, it has been a good thing to have, and should be a part of your plan. But how many extra pieces represent the right amount, and how many extra would be too many? If you discover over time that you only drop a cupcake about once per week, then making three extra with every batch is more insurance than you really need. Cutting back on overbuild with each batch reduces material costs and time for labor, and therefore, would make your process more lean, more efficient. Some of the numbers would change if you were able to sell these stale left-overs to someone down the road, but for the purpose of this discussion, we are assuming that they are thrown in the trash after the customer’s order of 24 is filled.

The answer to this problem may be to know the metrics of your process well enough to understand how many extras are the correct quantity. Keeping track of how many you throw away each week may mean more paperwork, but it can pay off in the long run.

2. Queuing problems. When you have a production flow that is based on several people doing specialized tasks, and the flow gets interrupted at some point, the “downstream” workers are basically just standing around. That certainly doesn’t fit in a lean manufacturing flow. In our cupcake kitchen, if you have people who just slap on the icing when the cupcakes are finished, and the oven breaks down, or the delivery of flour was late, there is no value added to the product when those workers are standing idle.

The answer to this problem may be to cross-train workers so that there is something else for them to do when there are no cupcakes to ice. Have your “icers” measuring out ingredients for the next batch, and you will be getting something done during their down time.

3. Motion and transport problems. Lean manufacturing is best carried out when the logistical flow of your fabrication is convenient. For example, if you are baking cupcakes in the kitchen, but for some strange reason you store all your sugar in the bedroom closet, you are going to spend a lot of time walking back and forth between the kitchen and the bedroom. Not only that, but with each new trip for sugar, you add the risk of dropping a container, and wasting that much raw material. Okay, this is a wild example, but the lean manufacturing point to be made is that one task in your process should be conveniently located next to where the previous task was performed, and where the following task will be performed.

The answer to this problem may be to lay out your work flow so that it eliminates extra transport, motion, and confusion. You can check this out by tracing out the usual path that is followed moving product from one step to the other. Your “spaghetti chart” can be an indicator that you have extra steps in the flow. Those extra steps do not add value to your product, and should be reduced to make a more economic lay-out.

4. Defective product problems. Almost all manufacturing systems suffer from some weakness that will result in a few substandard end-products. Good lean manufacturing methods require management of those weaknesses, so that the number of reject cupcakes is reduced to the lowest possible number. For example, if you discover that one side of the oven cooks hotter than the other, burning an occasional cupcake on that side, it may be time to get the oven fixed. While the repair may represent an overhead cost that will take awhile to recover, the value over the long haul will likely be worth it. Even if your cupcakes are slightly overcooked, your customer may notice the taste, and then silently decide to take his business to another baker.

The answer to this problem is to make sure your process routinely yields a high quality product. Following a lean manufacturing method will require you to frequently look at your processes and equipment to make sure that everything is working well.

If all of this is a bit overwhelming, and you need to start somewhere on your lean manufacturing focus, begin with the problem of overproduction. This is the most common area where waste is produced, and one of the easier places to trim. Maybe your business isn’t cupcakes in the kitchen, but the same lean manufacturing techniques can improve your competitive edge in the marketplace, regardless of what product you make.