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Thursday, March 31, 2011

How to make the most of Google Analytics

Google Analytics is a powerful free web based software designed for website managers. The software can be used to monitor, improve, understand and restructure websites for optimal performance. Specifically, Google Analytics enables the website manager to know what works, what doesn't work, where visitors navigate from, where they navigate to and helps provide intuition as to why certain web pages and/or products perform better than others.

When combined with Google Adwords, Google Analytics tools only get better allowing the software user to obtain more information about which ads are clicked on, who clicks on the ads by location, volume of visitors to buyers etc. Making the most of a software such as Google Analytics involves making sense of the information that is provided by the software.

Different kinds of bank loans for small U.S. businesses

Small Businesses obtain financing for various aspects of business operations through specialized bank loan products. This article illustrates the various types of loans available to business owners through banks in addition to indicating how such loans can be approved. A discussion of a few banks and their loan products will also be provided for the purpose of further illustrating the types of loans available.

Types of bank loan products

• Lines of credit

A line of credit may be either a secured or unsecured account i.e. collateralized loan or un-collateralized loan. Lines of credit are similar to credit cards but usually have interest rates based on the prime rate and are thus lower. Lines of credit are more flexible than credit cards because they also act like accounts and checks can be written against them.

• Cash flow loans

Cash flow loans are used to finance periods of time within the cash conversion cycle. In other words, the time between providing a service, invoicing, and receiving the payment and then paying creditors. The shorter the cash conversion cycle is the more money a business can save in cash flow expenses such as interest on the cash flow loan or other source of credit. Companies that operate on a cash basis may not have the same requirements for cash flow as a business using the accrual method of accounting.

• Business credit card

Business Credit Cards have higher interest rates but can be used for solid bookkeeping. The reason credit card loans are good for bookkeeping is all the transactions are recorded electronically, immediately or soon after the expense has been charged. This can lower accounting expenses as some of the financial reporting is included as a service of the loan.

• Debt refinancing loan

Banks also offer debt refinancing loans that can consolidate other business debt at a lower interest rate. For example, if company A has 3 credit cards with other banks at an average interest rate of 14%, Bank B may be able to provide a loan refinancing all 3 credit card's debt at a lower interest rate. This allows the bank to acquire new business and the business owner to obtain a lower monthly payment.

• Equipment and machinery loans

Equipment and machinery loans can include vehicles, tractors, conveyor belts, irrigation systems etc. Many types of businesses have unique equipment and/or machinery needs for which these loans are designed for.

• Start up loans/seed capital

Seed capital is a loan used to financing the opening and initial operation of a business. In this case, small business seed loans are applied for and either approved or rejected by the bank. These types of loans can have rigorous application requirements that can be subject to significant scrutiny by the bank. Depending on the type of bank and their specialization, seed capital loans may be easier or 
harder to find.

How to qualify for bank loan products

Qualifying for bank loans depends on several factors including the interest rate of the loan, the type of loan product and the financial and professional credentials of the applicant. The more secure i.e. collateralized, high interest rate loans to clients with good to excellent credit histories and strong business fundamentals are the bank's ideal loan and customer because this provides a low risk of default and high rate of return.

Banks can't always have it there way however, and sometimes competition for loan products can cause interest rates to drop and loan application incentives to be introduced. For example, free services through the bank if a loan is approved. Depending on the type of loan the following criteria may be used when considering a loan application. Naturally, the better an applicant meets the criteria, the more likely the loan will be approved.

• Business Credit Rating
• Balance Sheet Information 
• Financial Ratios ex. Current ratio, profit margin on sales, debt to assets ratio.
• Professionalism and Quality of Application
• Collateralization
• Banking relationship

Banks and bank loan products

There are many banks to choose from with varying loan products. Some banks have specialized loans such as vehicle loans while others may have more general loans. Larger banks have more capital to lend and so obtaining a loan may be easier through a large bank if the loan is for a large amount. A few of the larger U.S. banks that either specialize or write a significant amount of business loans are listed below.

1. Bank Of America: This large U.S. bank has a wide array of business loan products.
2. CIT Corporation: A business friendly bank specializing in business loans.
3. CitiGroup: Another of the larger U.S. banks with large asset resources and loan products

Local banks may not be able to provide the same liquidity and financing as larger banks but they may have better customer service and loan products that suit one's business better. For example a local rural bank may have loans specifically for farming equipment and machinery. Depending on the type of loan, different smaller banks may specialize in or more types.

Small business loans are in plentiful supply within the United States. The variety and terms of U.S. business loans can be quite diverse and the application requirements depend on the type of loan in addition to other factors such as risk to the bank, rate of return etc. When researching a small business loan, the information contained in this article may be useful as reference and/or starting point for obtaining the right loan for a small business.

How Net Present Value is calculated

The Net Present Value (NPV) calculation makes use of an important time variable to tell you 1) the value of an investment at present time given future cash flows and 2) if the investment is worthwhile. Net Present Value is important in valuation of projects and investments because the combination of estimated value based on cost, yields and cash flow can sometimes paint an inaccurate financial mirage without quantification of the variables.

Another reason why Net Present Value calculations are useful is because they can help determine if an investment or project is more profitable than it actually is in less uncertain terms. With numerical figures entered into a proven formula, the only factors that may be questionable are the future cash flows and cost of capital. Moreover, if these can be reliably estimated, the resulting NPV stands a greater chance of accurately predicting present value.

When NPV calculations are used 

If you buy a bond and know the periodic interest rate, and will receive the face value of the bond at a specific point in time like 10 years, then fair valuation would price the bond at the present value of all future payments. Present value adds up all the interest payments, and the difference between the initial purchase price of the bond and the future reimbursement to arrive at a present value. In another circumstance maybe a bond is bought from someone else several years after it was originally issued and you want to know the price. Net Present Value would factor in additional costs if the bond investment were considered as a project.

Perhaps you are a project manager and are attempting to illustrate the value of a project to another executive. The Net Present Value calculation will mathematically give you the total value of an investment's returns that are in the future and are based on key variables including 1) the cost of capital, 2) time, and 3) negative and positive cash flow. Two more examples of circumstances in which NPV calculations may be used are below:

• Example 1: Your business purchases tax free bonds with some of its earnings. The bonds pay 5% every 6 months for 10 years at which time the face amount of the bond is either redeemable without penalty or rolled over. You are trying to calculate how much you should pay for the bond not to be overcharged and use a NPV calculation to do so.

• Example 2: Your company is thinking about investing in a project and wants to know if the opportunity cost is lower than the rate of return for the project. You know how much the initial investment is and have a good idea of what your annual returns will be and how much, if any, the financing of the project will cost. The NPV calculation can help you with the decision.

NPV calculations and methods of calculation

Net Present Value can be calculated in a number of ways and a number of different NPV calculations exist for varying circumstances. In other words, due to differences in variables used, Net Present Value calculations can differ. For example, a bonds can provide either fixed or variable rates of return. Both cases require different calculations. Additionally, cash flows can vary from year to year due to changes in project success and/or cost. NPV can be calculated manually, with regular or financial calculators or with financial software. Examples of NPV calculations are below:

Calculating Net Present Value against costs of capital and opportunity cost for a fixed rate bond 

Variables: Term of the bond 10 years
Fixed rate of return 5% annual
Future Face Value: $ 5000.00
Interest payments: Bi-annual

Step 1: Calculate present value:
$5000.00 x 5%= $250.00 x 10/20=$125.00
$125.00 x 20=$2,500 + $5000.00 =$7,500.00
The bond is worth $7,500 at present with all cash flow included

Step 2: Reduce value by cost of capital
Cost of capital, inflation + opportunity cost
3.35% (est .avrg)+2% (est. return after risk reduction)
=5.35% = $3210.00+$5000.00=$8,210.00

Step 3: Subtract present values for net present value
$8,210-$7,500= -$720.00
NPV= - $720.00

Conclusion: The bond is a bad investment based on cost of capital and opportunity cost discounting.

Calculating Net Present Value with inconsistent cash flow

Variables: Project down payment $5000.00
Cost of financed capital (Annual project yield -Annual project cost): 12% per year
Time period: 10 years
Cash flows: Between 12-18% ascending return per year

Step 1: Calculate present value of each individual estimated cash flow
Y1: $600.00 Y2: $625.00 Y3: $650.00 Y4: $675.00 Y5: $700.00 Y6: $825.00 Y7: $850.00 Y8: $875.00 Y9: $900.00 Y10: $900

Step 2: Present value for each future year's payment equals percentage yield plus value to which that yield can be added to amount to the future yield. EX: $600 =$535.71 x 12%., $625.00 =$498.246 x 12% for 2 years.

Step 3: For each year add the present value to arrive at Net Present Value. Ex. $535.71 + 498.25= $1033.96 for 2 year Net Present Value.


Brigham and Houston. 'Fundamentals of Financial Management 9th ed.' Mason, Ohio. South-Western, 2001, Chapters 8 + 11.

How the law of increasing costs works

The 'law of increasing costs' is an economic concept that states production costs will increase if maximum output efficiency has already been reached with fixed inputs i.e. overhead and other expenses. Once maximum efficiency of production is reached, the law of increasing costs states the cost to produce more will increase thereby lowering profit margin via increasing costs.

Illustration of the law of increasing costs 

The law of increasing costs can be illustrated with the example of a restaurant's file mignon operation. In this operation, maximum efficiency or profit margin is attained when 3 chefs produce 12 filet mignons per hour when operating with maximum efficiency while the costs of cooking the meat is constant i.e. ingredients, electricity, and wages, then increasing the number of filet mignons cooked in one hour will cost a company more than producing less.

Inputs and outputs:

• 3 Chefs produce 12 filet mignons in 1 hour
• Electricity, ingredients and wages are constant
• The Chefs are working at maximum efficiency

If the above illustration costs a restaurant $91.00 divided as $15/hr per Chef, $3/filet and $10 for 1hour of electricity and overhead, the restaurant will have to increase this cost to produce more filet mignons. This will cost the restaurant more in overhead, wages and ingredients that could negatively offset maximum profitability via the increase in cost.


• $3.00 per filet
• $10 of electricity and overhead per hour
• $15.00 hourly Chef wages

To illustrate further, the restaurant sells the filets for $9.50 each or $114.00 before tax for a profit of $23.00. If the restaurant wants to produce 15 filet mignons they will either have to hire 1 more chef, buy more filets and use more overhead. This additional increase will cost $15.00 for the Chef, $9.00 for the filets and $3.33 for electricity and overhead for a total of $27.33. 15 filets sold at $9.50 are $142.50 for an additional $27.33 of cost. The total cost is now $91.00 + $27.33=$118.33 and the profit is $142.50-$118.33=24.17. Thus the costs increase more than the profits to produce more filets confirming the law of increasing costs. Stated otherwise, with maximum efficiency at 12 filets/hour, the restaurant makes 25.27% of cost i.e. profit margin or 20.17% of total revenue whereas with 15 filets produced the restaurant only earns 20.43% of cost or 16.97% of revenue.

Validation of the law of increasing costs

The law of increasing costs can be both confirmed through cost adjustment profit margin comparisons. Moreover, in the world of business, costs only remain fixed for relative periods of time making the maximum efficiency in production also variable. This can be illustrated by adjusting an calculating profit margin for adjustments in Chef's time spent working and the number of Chefs. For example, if filet costs rise to $3.50 per filet due to a drought that causes feed costs to rise, then the maximum profit margin will remain at 12 filets as stated in the above example. This will be illustrated by comparing 2 separate adjustments in comparison to the original efficiency level or 'control' level above.

• Effect of filet cost increase on original efficiency

To illustrate how efficiency is stable at a certain rate regardless of Chefs used, time spent cooking and cost of filets the following examples are illustrative. If the Chefs produce 4 filets each per hour at the increased filet cost of $3.50, 12 filets will be produced as in the previous illustration. However, all other costs held constant this amounts to $114.00 in sales minus $97.00 in cost=$17.00=17.525% in profit for a 7.74% decrease in profit margin for a .50 cent rise in per unit cost.

• Effect of hiring a 4th Chef on profit margin

If a fourth Chef is hired, 15 filets will be produced at a cost of $60.00(wages) + $52.50 (filets)+$13.33 (overhead)=$125.83. At $9.50 per filet this new production of 15 filets yields $142.50 in sales. $142.50-125.83=16.67, which is 12.03% less profit margin.

• Effect of reducing time spent cooking on profit margin

Contrarily, if the Chefs only work for half an hour however, and produce only 6 filets, the cost goes down $22.50 in wages, $21 for filets, and $5.00 in electricity and overheard for a total cost of $48.50. Since the filets are sold for $9.50 each without adjusting for cost, the total sales will be $57.00 minus $48.50 in cost for a profit of $8.50=7.92% decrease in profit margin.

While reducing the cooking time decreases profit margin by a similar amount to holding all other variables constant except filet cost, the original example still yields a slightly greater efficiency i.e. 7.92%-7.74%=.18% difference in favor of the original method.

Despite the above validation of the law of increasing costs, there is still evidence the law is not absolute via certain additional adjustments and/or scenarios. For example, in instances, where increasing per unit cost has a multiplier effect on potential profit margin, the law of increasing costs does not apply. 

To illustrate this example, consider the application of exponential increase in output for linear increase in input. Since exponential increases are greater than linear increases, the efficiency will rise with linear increase in input. Moore's law and computing components (answers.yahoo.com) illustrate this point. As technology advances, output of computers increases more than the per unit cost in enhancing the technology.

The law of increasing costs is similar to the law of diminishing returns and can be illustrated using the law of diminishing returns that states costs will increase as evident in a decrease in returns when production levels surpass maximum profitability and/or efficiency levels of production. This article illustrated this law through the example of 3 Chefs producing filet mignon at a restaurant with costs held constant and adjusted. 

In all examples, the efficiency level was not contradicted. Nevertheless, the law of increasing cost is not absolute as evident in certain scenarios such as the application of exponential output via application of Moore's law to linear increase in cost input. While Moore's law itself is debatable, the example serves to illustrate cases of increased efficiency are possible when exponential or larger production is possible for a corresponding declining percentage increase in input costs.


1. http://en.wikipedia.org/wiki/Diminishing_returns
2. http://answers.yahoo.com/question/index?qid=20060907234254AAULjAS
3. http://en.wikipedia.org/wiki/Moore's_law
4. http://mmcconeghy.com/students/supscruleof70.html

Understanding the accounting concept of cash flow

The accounting concept of cash flow provides insight into businesses operations and cash positioning at the time the cash flow is recorded. Cash flow in its simplest form is the sum of cash that moves in and out of a business, specifically in terms of business operations, financing i.e. borrowing activities and investing activities. These three elements of cash flow are frequently recorded on the cash flow statement. (investopedia.com)

Cash flow statements, which became mandatory financial reporting statements in 1987 (ibid) illustrate cash details not included in other financial documentation. Since net income includes revenue owed but not received, this net income calculation can fall short in accurately reporting a companies complete financial position. (Brigham and Houston p.48) For example, net cashflow subtracts depreciation, amortization and cash receivables that haven't been received from net income.

Why cash flow is important

Cashflow is important because it provides financial analysts, managers, shareholders and regulatory institutions such as the Securities and Exchange Commission (SEC) or the Federal Deposit Insurance Corporation (FDIC) with more detailed information regarding a businesses cash inflow and outflows. This information is useful in determining several factors regarding a business or company's use of cash. A few of the insights and facts revealed by a cash flow statement include the following:

• Demonstrates efficiency of cash utilization
• Allows for more comprehensive financial reporting and identification of cash usage
• Cash flow returns over time i.e. with several cash flow statements
• Operating, financing and investing activities
• Information used in calculating cash flow ratios and equations ex-net cash flow
• Assists in determining business valuation *Allows for more comprehensive financial reporting

How cash flow is measured 

Cashflow and information within cashflow statements is used in measuring several useful accounting and financial functions. Three such metrics include net cash flow calculation, cash flow ratios and  cash flow based calculations such as present value of cash flows and internal rate of return. (wikipedia) Since the cashflow statement is divided into three sections included cash flow from operations, investing and financial activity, different ratios can be formed using each area of the cash flow statement. For example, the operating cash flow ratio is determined by dividing operating cash flow by current liabilities. (Brigham and Houston p.56) A few of the different cash flow ratio metrics are listed below.

• Operating cash flow ratio
• Price to cash flow ratio
• Free cash flow ratio
• Cash flow to debt ratio
• Working cash flow ratio

Additional cash flow measurements such as present value of future cash flow and internal rate of return use cash flow values to determine how much a series of cash flows are worth in terms of achievable interest rates as applied to each cash flow over time in the case of present value of cash flow (Brigham and Houston p.294) and matching costs to present value through adjustment of interest rate in the case of internal rate of return or IRR. (Ibid. p.509). These latter two calculations are quite important in bond and project valuation because they allow investors and managers to determine reasonable assessment of valuation and worth.

Both present value of future cash flows and internal rate of return can be calculated by using the functions of a financial calculator. For example, if a business has a 12 annual cash flows of $100, that are able to earn an interest rate of 10% upon receipt and where the first payment is received at the beginning of the first year the following function buttons can be used. N (Number of payments), I (Interest rate), PMT (Payments/Future cash flow), and FV (Future value). (Brigham and Houston p.295). 

To calculate the present value of future cash flows first determine the future value for poseterity by entering the values using these function buttons. For example, N=12, I=10, PMT=-100, PV=0 then CPT (compute) FV=$2138.428. Since payments are reversed the value is recorded as negative. Then, to compute the present value of the future cash flows, enter the same values except enter $0 FV and compute PV for a value of $681.369. (Ibid.p305) This is also called an annuity cash flow present value.

Cash flow is a vital part of business operations and is often reported on the 'cash flow statement'. Cash flow is the movement of cash in and out of a company for various purposes over a given time and as recorded in the cash flow statement. Cash flow records can be used for a variety of financial and accounting purposes including valuation, assessing business management decisions, determining cash solvency via cash flow ratios, and illustrating how and where cash is used in a company. The cash flow within a company is a dynamic and important aspect of business operations, financing and investment for which the ideal balance of cash usage varies depending on type of business, economic conditions, business management and accounting reporting requirements.


1. Eugene F. Brigham and Joel F. Houston. '0Fundamentals of Financial Management 9th edition'. Mason, Ohio. Southwestern, 2001. P.48-52.
3. http://www.investopedia.com/articles/04/033104.asp 
4. http://en.wikipedia.org/wiki/Cash_flow 
6. http://www.candlestickforum.com/PPF/Parameters/11_1262_/candlestick.asp

Tips for obtaining business loans from U.S. banks

Opportunity is not always hard to come by in terms of U.S. business loans, however tight economic conditions such as recession can make credit standards higher. Nevertheless, even in periods of economic recession private, commercial and government lenders such as the Small Business Administration (SBA) can be found to finance existing business operations with both secured and/or unsecured loans. Of course to acquire a loan a loan application or bid needs to be approved, and that is a key step in obtaining a business loan. Getting approved for business loans takes into a account several important business related factors that indicate a businesses performance.

• Credit rating
• Collateral
• Business model and history
• Market share
• Financial statements
• Tax status
• Financial ratios such as debt/equity, turnover, and profit ratios

An additional factor contributing to financing of business loans include the ownership and management of the company. Lenders may look at management skill, know how, and experience in assessing the application of any financing. The loan application itself can also have an impact as this is how the applicant presents his or her company to the fancier. The following tips provide additional information regarding the loan application procedure.

Thursday, March 24, 2011

How to find private funding for a small business

Private business financing
Most financiers will evaluate risk of loan default before lending
Multiple sources of privately funding a small business exist, and there are many ways to find these sources of financing.

Lenders and investors alike are numerous, and thus finding them is not necessarily the most difficult part in obtaining small business financing.

In other words, finding private funding for small businesses involves locating the most appropriate financier(s), and then proving to them, the investment and/or loan is worth making. 

The key(s) to obtaining funding is generally multi-tiered involving some or all the following factors  a solid business history,  an excellent business plan,  demonstrated credibility and commitment to the business  knowledge of the business and industry and  organizational skills and the ability to carry out the business plan.

If one has all these proverbial "ducks in a row", the next step is to find the funding, and at as low a cost as possible. Since there are several sources of private financing for a business, it is probably not imprudent to take a little time exploring and discussing the different lending options and terms with lenders. If the business is a new business that hasn't been incorporated yet, the business structure such as limited liability corporation, partnership, small business etc. in addition to the articles of incorporation and bylaws will determine how many shares, if any can be offered to private investors and at what price.

Sources for funding a small business 

Several of the different avenues for funding a small business are listed below. These sources of financing generally have varying terms. For example, a venture capitalist may seek out partial ownership of the company and its net income whereas an private lender not interested in ownership will more likely seek out a periodic interest rate and eventual payment of the principle of the loan. What's more, partners or co-owners may only seek out profits when they earned as they have a vested interest in the survival of the business.

• Private stock offerings
• Partnership and business structure
• Venture capitalists and/or angel investors
• Online and offline private lenders
• Seed and start up grants from private organizations
• Networking via accountants and attorneys
• Listing via affiliated organizations of interest

Approaches to take when finding funding

As with most funding, the co-owners, lenders, partners, investors etc. are interested in the stability of their loan and/or investment. For this reason demonstrating either the likelihood of the loan being paid back or the return on investment is important. If one already has the knowledge and skill to effectively run a business successfully, but little or no financing to operate the business, a next step is to prove the business will work by making obvious the adeptness of the ownership and/or management in the following ways.

• Professionalism
• Strong documentation of business plans and/or performance
• Excellent interpersonal and communication skills
• Viable personal and/or business credit rating
• Dedication, know how and proven fervor and skill in the business

Lenders and investors will often not just look at what's good about the business and its management, but also what is bad. They may look for holes in the operations, declines in valuation, revenue, or profit margin statistics and seek out explanations and answers for scenarios, financial actualities and future predicaments. It is consequently, also important to be ready to answer these questions well.

Funding a small business is a dream many persons pursue to achieve their life goals, realization of their passions and in living out a rewarding and fulfilling life that is meaningful and happy. In the case of start ups, this dream is often the vision that will carry on throughout the life of the business as it evolves. For existing businesses, there may be new projects in the works, bigger dreams, liquidity concerns, seasonal factors etc. that require additional funding.

Essentially funding a small business requires strong presentation and proven ability and capacity to carry out a business plan/continued small business operations. There are many sources for financing small businesses, and finding the sources may be easier than proving to them a small business is worth funding. This article has illustrated some of the sources of private business financing for small businesses in addition to some of the ways to go about obtaining the small business funding once the source has been located. As with any business venture, achieving success can be competitive, and therefore obtaining the financing can also be competitive.

Image license: PublicDomainPicture/Pixabay, US-PD

How to assess if your business insurance provides adequate coverage

A good approach to take when assessing if your business insurance provides adequate coverage is to go through a series of steps that address business hazards, assess replacement costs, identify insurance risk probabilities, and evaluate insurance options. The following five steps, one at a time. These steps can assist business owners or managers in determining if their business insurance coverage is adequate.

Business insurance factors

The following topic points can help a business manager or owner itemize which business insurance coverage you need most,  accurately assess the value of your business or separate items within the business,  classify insurance coverage according to risk, cost and probability and  help in knowing what to look for if and when you decide what coverage is best for your business.

Business insurance is a business decision and should therefore be approached in a business like manner. Assessing if your business has the right amount of coverage can be done in a way similar to determining how much to spend on advertising, how much inventory to hold, and how to best implement a revenue strategy. In other words, insurance is no exception to the business of business.

Accounting terms: The general ledger

In accounting, the general ledger is an important aspect of bookkeeping that verifies and documents where and how money is utilized within a business. General ledgers are important for assessing business cash flow, and in preparation of other financial documents that are distributed to corporate owners, managers and government regulatory authorities for financial disclosure and decision-making. General ledgers can be maintained using accounting software or via spreadsheets, and are ideally done so on a consistent basis. The following subtitled sections breakdown the general ledger into its component parts and principles.

Credit and debit accounts

Not all types of accounts in the general ledger work the same way. Some accounts are debit accounts and others are credit accounts. This means that value is subtracted from either the debit or credit side postings. If a general ledger T-Account is a debt account, it is increased by posting on the debit side and decreased on the credit side. The reverse is true for credit accounts. Debit accounts include assets and expenses whereas credit accounts include liabilities, owners equity and revenue. For an illustration of how posting in the general ledger is different for debit and credit accounts, consulting a guide to debit and credit on general ledger accounts can be helpful.

General ledger accuracy

Posting numbers in the general ledger is important in accounting. There is essentially no room for error when posting numbers in a general ledger because accounting is either right or wrong when it comes to implementing Generally Accepted Accounting Principles (GAAP) and standard methods of recording financial activity. An inaccurate general ledger can lead to fault financial decision-making, bad financial reporting and poor financial records. If posting in the general ledger includes more than one account, the value of the credit posts must equal that of the debit. The accuracy of a general ledger may be discovered in a failure to reconcile or through an accounting audit.

Posting in the general ledger

Several different people may post in a general ledger depending on the size and type of organization. Larger organizations may have a networked general ledger with which many people can record flow of money within and without a business at the same time. Efficiently and quickly posting in the general ledger helps in the resolution of questions regarding business finances and in the reconciliation of accounts. All debit and credit accounts should balance i.e. equal each other in value. This process is called reconciling the general ledger. An example of a general ledger posting is as follows: An asset is paid for in cash and credit; in the initial posting total debit will be split between the asset and expense accounts, and the total credit will be divided between cash and accounts payable.


Since the general ledger consists of multiple accounts, an accountant or bookkeeper can specifically allocate cash flows by documenting the movement of money on a T-Account. The T-Account consists of columns and rows used for recording date, and account type in addition to whether money is debited or credited on that account. T-accounts are named such because the debit or credit columns are formed on either side of the T, and the top of the T is the line where the account name is placed. Some general ledger accounts may also be assigned numbers in addition to names. For example, in the following linked to California State Administrative Manual, general ledger asset accounts are numbered between 1100-1999.

General ledger software

There are many standardized, cost effective and useful types of accounting software that include general ledgers. If a company has specific intranet network needs, an accounting software may need to be customized to work most efficiently for that company network. Other times a software such as Intuit Quickbooks may be sufficient, cost effective and time efficient for recording and management of general ledger data. Cloud computing software may also enable outsourced Information Technology management and expanded options for use of general ledgers. For example, recording of general ledger information from mobile hardware and outsourced maintenance of accounting software.


1. http://bit.ly/cJ26Ow (University of Houston-Victoria)
2. http://bit.ly/dvWCbc (California Department of General Services)
3. http://bit.ly/F0uNY (DWM Beancounter)
4. http://bit.ly/9mV94A (QuickMBA)
5. http://bit.ly/c1haCb (Watch Captain)

Wednesday, March 23, 2011

Financing a new business with personal savings

Depending on the business, utilization of personal savings as a source of financing can be achieved in a number of ways. Before going into more specifics however, it is important to note that capital invested in a business is locked in that investment until it is either withdrawn and/or yields a profit. For this reason it is advantageous to utilize one's capital in supplementation of one's business instead of sole capitalization.

The following illustrates a three-step process by which personal savings can first be maximized for optimal leveraging and application through employment of financial instruments and institutions. Second, the financing obtained in step one can be further optimized by properly applying the funds as necessitated by considering the type of business. Then, in the final step, the business itself can be operated using overhead expense management techniques that minimize start up operating costs.

Step 1- Financial leveraging

The goal here is to take a sum of money and turn it into a larger sum of money through financial instruments and business tactics. As soon as money has been invested in a business it can't be used for anything else until it yields a profit. For this reason it may be a good idea to leverage the capital before investing it in anything. A few such leveraging methods are as follows:

Business Plan Collateralized Loans: Non-secured loans don't require collateral, but rather a good business plan. The fact a business owner is willing to put his or her personal savings on the line is the first step in this business finance plan as it demonstrates the willingness to invest personally. If the lender finds the business plan achievable they may loan money without collateral thereby once again allowing the business owner to not use up the personal capital.

Small Business Seed Grants and Capital: Seed grants and/or capital may be available to entrepreneurs with demonstrated capacity to attain probable cash flow in a new business. Furthermore, depending on how strong the business model, idea and plan are, the seed capital may not require repayment in the case of a grant or have low interest rates in the case of seed capital.

Loans on Investment: If savings are invested, those funds can earn a percentage in interest and/or capital gains, and also be used as collateral for additional financing. This way a business owner isn't actually using his/her money. What's more, the returns from the investment may pay off all or part of the interest on the loan. One may also be able to obtain partial collateralization in which the savings allow one to borrow double, triple or even more than the original capital at hand.

Step 2-Maximizing capital through business type

Online lending business:

Companies such as www.prosper.com allow lenders and borrowers meet outside the confines of traditional loan application procedures and interest rates. If one wants to start a lending business, this may be a good place to start as individuals and investment groups come together and arrange loan deals for interest rates in excess of 8%.

Multiple owner business:

Many investments in businesses are made by groups of owners and/or investors. This enables the owners to pool their money and achieve more. By starting a business with multiple owners one is in effect leveraging one's own capital with the capital of others. In this case personal savings are the entry fee to a potentially profitable business.

Community based business:

If a business is to be operated with the goal of assisting certain social, community or religious needs the financing for such operation may be provided for by a parent organization. Examples of this include churches, state and federally sponsored privatization programs and fundraising organizations for social causes. While the business may not earn huge profits, it may return a stable living and with little or no start up cost.

Step 3- Overhead expense management

To reduce investments costs and operating expenses one may also utilize overhead expense management techniques. These techniques allow one to

Consignment Inventory: If the business involves inventory of any kind, it may be possible to negotiate a consignment or partial consignment with the wholesaler. Not only does this allow the business owner the opportunity to return some or all of the goods if they aren't sold, but it also doesn't require outright purchase of the inventory. This method of inventory saves the wholesaler inventory storage overhead costs and frees up savings/capital for other uses.

Space Utilization: Rent and/or building costs can be a very large expense for a business. For this reason it is advantageous to avoid this expense altogether by either working from home, finding an operating location outside the city and/or sharing space with a other businesses or soliciting space at discounted prices. Space utilization may require relocating but the pay off could mean a great reduction in monthly expenses.

There are many other expenses and methods that can be implemented to supplement and/or make the most of one's personal savings when starting a new business, The above steps are just a few of the possible approaches to starting a small business with use of one's personal savings.

Comparing expensing and capitalization in accounting

Accounting principles allow the purchase of large business items to be recorded on assets without cost other than depreciation expense on the income statement. In other words, the immediate cost of expensive business expenditures can be incurred over time via straight line or accelerated depreciation. This process is called capitalization of expenses and should not be confused with "capitalization" which is equity investment within a company.

Expensing is different from capitalizing of expenses because items i.e. assets or services are not depreciated in this method. Instead, with this accounting technique, when items are expensed immediately the costs are realized as a reduction to revenue rather than an increase to the liabilities of a company. If the expense is to be paid over a few months, all or part of it may become a short-term liability but will usually quickly become expensed as the debt is paid. The following eHow video provides additional explanation of expensing and capitalization:

How to expense and capitalize costs 

To expense an item assets are debited if it is a product or prepaid service and liabilities are credited if the expense will payable in the future. If the expense is payable immediately, revenue is debited and cash is credited since revenue expenses are credit accounts and assets are debit accounts.

To capitalize an expense, assets are debited i.e. usually a long term or fixed asset and liabilities are credited. Then, as expenses are realized through depreciation, liabilities are debited and revenue is credited as an expense. Thus, instead of immediately lowering revenue and therefore profit calculations, capitalized expenses increase assets and liabilities for a balanced increase in both.

Advantages of expensing 

The advantages of expensing are not the same as those of capitalizing, however since capitalizing of expenses is only realized for larger expenditures the benefits of capitalizing expenses cannot be realized when expensing and vice versa. Below are a few of the advantages that may be realized with the expensing method:

Increases to liabilities are short lived if accrual and do not occur if paid immediately
• Taxable income may decline more than a capitalized expense depending on the exact amounts
• Interest payments, if any, will likely be short lived
• May not involve as much bookkeeping requirements as large capitalized expense

Advantages of capitalization 

Capitalizing expenses is a little more complicated than expensing but can have advantages that aren't realized with expensing. These advantages may have a greater impact on a company because the monetary amounts of capitalized expenses are larger. A few of the potential benefits of capitalized expenses are listed as follows:

• Does not have as a dramatic effect on the income and income statement as when fully expensed.
• May encourage equity investments
• Interest and/or value changes of debt over time may end up costing less
• Has potential tax benefits that can add additional value and/or savings to the expenditure

Since many businesses don't operate with zero debt, looking into different ways of expensing purchases may be wise to an overall business strategy. Two such methods of expensing are short term expensing and capitalization expensing. The former is usually used with more current and/or revolving expenses such as pre-paid services whereas the latter usually applies to larger, more long-term expenditures such as buildings, and expensive equipment or machinery. Each method has unique advantages, bookkeeping requirements, and effects on financial statements and income numbers.


1. http://www.answers.com/topic/capitalize?cat=biz-fin
2. http://www.dwmbeancounter.com/tutorial/MouseQuizzes/Test4-1.html

Tax aspects of S corporations

An 'S' corporation is a small business that has filed a Form 2553 with the U.S. Internal Revenue Service. The Form 2553 is an official corporate document representing a 100% shareholder approval of the desire to become recognized as an 'S' corporation as governed by Section 1362 of the U.S. tax code Title 26 . Both new and pre-existing companies regulated by different tax statutes may become S corporations provided they meet the requirements.

Qualification to become an S corporation

Form 2553 must be filed before March 15 of a given year to qualify as an S corporation for that year.
To Form a S corporation, there may only be 99 or less owners/shareholders. The Shareholders must also be legal U.S. residents. If an existing company is filing the Form 2553, that company may not be a 'C' Corporation i.e. a more formal business subject to different tax regulations.

How debt is used to build wealth

Debt has the ability to be both a positive and negative catalyst for wealth. Too much debt becomes out of control, too little debt and opportunities may pass by. Debt has been used as a financial instrument for centuries and is means by which lenders can make a profit and borrowers can  engage in financial ventures otherwise unfunded  increase standard of living and  allow businesses to finance activities more profitably. 

This article will focus on the use of debt as a potentially wealth building business venture. Financial ventures and expenditures financed through debt can go very well or terribly wrong if the debt is unrealistic, cannot be paid back or does not create a return higher than the cost of debt. An example of beneficial debt leveraging is Coca-Cola's use of "debt financing to lower the cost of capital, which increases return on shareholder equity" (Coca-Cola 10Q, 4Q 2007) In other words, the cost of debt is cheaper than other sources of capital for Coca-Cola company.

Before moving on with how debt is used to build wealth, it is important to understand the financial concept of leverage becaues debt is one technique used to create leverage, which in turn is often used to maximize financial opportunity. The video below discusses financial leverage in more detail:

Business use of debt

Businesses utilize debt to increase potential returns whether those returns be through expanded operations, more inventory, research and development, project development etc. It is not uncommon for businesses to use debt because business owners and directors realize the potential debt has in creating wealth. One need only look at the financial statements of the thousands of publicly traded companies to realize just how much debt is used to finance one or more aspects of a business. A few examples of business use of debt to generate profit are the following:

• Leveraged buyouts
• Debt funded price wars
• Increasing product quality
• Capital investments
• Vertical and/or horizontal integration

Debt as a tool for growth

Without debt, businesses are left only with liquid assets and equity. While assets and equity may be a wiser choice in a higher interest rate environment, there are some times in the business and economic life cycle in which debt may be a worthwhile risk for growth. For example, there may be times when a proven demand for a product is there, and market research has demonstrated both competitors and customers are fueling the supply and demand equation.

To illustrate the above point, if company A is a grower and seller of tomatoes however in order to expand its product line to include a greater variety of tomatoes it needs more greenhouse space. Company A decides to take on a debt of $10,000.00 at an interest rate of 7.5% to build the extended greenhouse and increase its product line to include hybrid tomatoes. Sales that spring increase 4 fold from 2000 tomatoes to 8000 increasing revenue from a monthly revenue of $10,000 to $40,000. In this example the debt paid off immediately and turned a profit.

Debt funded opportunity

There are many types of debt and also many types of debt funded opportunities. Depending on the nature of the business venture, and the debt markets, the potential benefits and costs of debt can vary. Debt can include business credit cards, vehicle and equipment loans, property mortgages, lines of credit etc. and the opportunities that debt can make possible also differ, a few of which are provided below:

• Debt leveraging can put more control into the hands of business managers through capital restructuring

• New facilities, equipment and/or products can lead to increased efficiency and higher sales. The lower costs and higher revenue may translate into higher retained earnings.

• Tax Benefits: Debt costs may have tax benefits that reduce the cost of debt. For example, if the cost of debt lowers a businesses tax bracket by 19% for a corporation that would otherwise make between $75,000-$100,000 for a given tax year i.e. the tax bracket changes from 34% to 15% the savings on $74,000 of revenue would be approximately $14,060 excluding nominal base tax dollar amounts.

• Asset retention: Debt can also enable a business to retain assets that may be needed for other areas of business operation that would otherwise cost more to run. For example, if a line of credit charges 9% but a fixed asset loan costs 6% the latter debt is more cost effective.

Tips to consider when using debt leveraging

• Research

Knowing what the debt will finance and if such financing is likely to prove profitable is an important aspect of the debt decision.

• Ratios 

Ratios such as the current ratio i.e. assets/liabilities, debt to asset ratio, and the debt/equity ratio can be used to determine if the level of debt taken on is risky. Generally a current ratio between 1-2, and debt/asset below 50% are considered acceptable for businesses, but these numbers are relative to some extent.

• Interest rates 

The cost of debt can change depending on the interest rates. Since interest rates change, choosing not to take on debt at certain times may be beneficial.

• Economic cycle

If an economy is heading into a recession, sales may decline or not increase. The benefits of taking on debt for business expansion during these times may require more strategic thinking.

• Sales forecasts and market research 

Having an idea how the market will react to debt leveraged expansion or projects can be key in the decision to take on debt.

To recap, debt can be used to finance opportunity, business revenue growth, capital investments, tax savings and other forms of financial activity that may prove profitable. Taking on debt does open the opportunity for increased wealth but only under certain circumstances and environments. The information in this article outlines some of key aspects of debt value, consequences and uses. Knowing how much debt to take on, if it is the right time to take on debt and the affects of debt on profitability are all useful considerations to take into account when deciding to take on debt.


1. http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0001193125-08-041768&Type=HTML
2. http://www.iht.com/articles/2008/02/26/business/rtrcol27.php
3. http://www.buffettsecrets.com/warren-buffett-debt.htm
4. http://www.taxgaga.com/pages/c-business/taxrate.html
5. http://www.cato.org/pubs/pas/PA120.HTM

Tuesday, March 22, 2011

How small-business owners can effectively manage cash flow

Managing business cash flow affects business functionality and profitability because cash flow is the use of and movement of cash in and out of a business. Too much cash in one aspect of a business can adversely affect another aspect of a business and the inverse relation holds true as well i.e. too little cash in operations can lead to costly debt and lower net gains after return on investment.

Cash flow management can be tackled by dealing with several parts of the business by optimizing the cash flow for profitability in each of those parts. For example, business loans refinanced at lower rates optimize outflow by reducing interest costs. The goal of cash flow analysis is ideally to allow adequate availability of cash for business activities, in addition to helping maximize profit margin and/or net income after costs, taxes, depreciation, expenses and dividends if any.

The three major areas on the cash flow statement include operating, investing and financing activities. Small business cash flow always has operating cash flow and may have some form of investing and financing activities, but the amount of the latter two depend on the size the business.

How a C corporation is taxed

C corporations are the largest of U.S. corporations and also subject to the most extensive tax reporting requirements and documentation. C corporations may include a private company with 200 shareholders or a large publicly traded company with market capitalization in the billions of dollars. C corporations are subject to reporting a lot of financial activities and thus require strong bookkeeping and documentation throughout the tax year.

Tax forms required

There is a considerable amount of required documentation for filing as a C corporations. The primary IRS form is the 1120 which is different from the 1120S, a tax form required for S-Corporations which are small businesses with 100 or less shareholders. The form 1120 also includes several schedules that are used for calculating cost of goods sold, tax credit, total officer compensation, balance sheet items and dividends. The necessary documents to fill out and their complete instructions are freely available through the Internal Revenue Service.

How tax is calculated for C corporations

A primary factor in the calculation of how much a corporation will be taxed is retained income. The higher the retained income, the higher the tax imposed on the corporation will be. Since retained income is the bottom line after expenses and costs have been deducted this number can end up being quite a bit lower than revenue from sales and sometimes even negative in which case no tax is applied.

The idea that a C corporation is subject to double taxation is theoretically true but in cases where the shareholders do not sell their shares of the company they are not taxed capital gains tax. In other words, capital gains taxes are only charged following sales of shares and dividends are both deductible from taxation before earnings and taxed a lower rate than capital gains to shareholders.

C corporation tax lowering strategies

There are several ways to lower the tax of a C corporation. Specifically, since state taxation is also a factor, choosing to headquarter and/or operate a C corporation out of state with favorable business laws can be advantageous. For example, operating out of Nevada can be beneficial for a C Corporation because there are no state taxes or franchise fees imposed on the businesses. For C corporations that don't mind operating out of the U.S. mainland, the territory of Puerto Rico also offers significant tax advantages.

Additional strategies include the paying out of dividends or redirecting profits into a dividend reinvestment program (DRIP), profit sharing plans and./or pensions, both of which are tax deferred to participants and tax deductible to the corporation. Other options can include forming a different corporation altogether, for example a non-profit corporation or a MREIT in the case of real estate investment companies. The latter of these pays no taxes because the profits are either reinvested into the company or distributed among shareholders in the form of deductible dividends.

Another interest tax fact about C corporations is that in tax years where the company experiences a net loss, not only does the company not pay taxes, but the loss can be carried over to the following year and deducted from the total earnings of that year or any other year up to 5 years after the year of the loss. This is an incentive to assist struggling C corporations or C corporations in financial readjustment regain profitability without tax burden.

C corporations are one of several types of businesses identified within the United States tax code. C corporations are the largest type of corporation and subject to the highest amount of tax reporting requirements. However, C corporations are also able to deduct significantly more from revenue numbers than smaller corporations and the double taxation often associated with C corporations can be avoided with drips, long term holding of shares, and various other tax strategies including but not limited to net loss carry over from previous years, state or territory of operation and profit sharing plans.


1. http://www.irs.gov
2. http://www.expertlaw.com/library/business/c_corporation.html

Grant writing tips: Business grants from the government

To receive a government grant for a business, the application must match the grant requirements as close to perfectly as possible. Knowing the purpose of the grant and demonstrating the business has the capacity to carry out the use of grant funds is also very important to acquiring a grant, otherwise the application is probably a waste of time and energy. 

Grant awards
Grants help finance startup businesses & non-profit entities
For profit businesses usually have less grant financing opportunities at the government level than not-for-profit businesses. Nevertheless, business grants can be worth the effort when seeking an alternative to interest bearing loans and personal capital in business financing. This article will discuss some of the key elements of acquiring government grants, namely the business type, application process, writing of the grant and grant writing tips.

Types of businesses most likely to receive grants

Government grant money is set aside to accomplish specific development goals. Whether such goals be charitable, economic or developmental in nature, many businesses will automatically be classified as less likely or ineligible to receive grant money due to the type of business it is. For this reason, if a business is operating for profit, receiving grants will most likely be more challenging if not impossible due to grant fund allocation requirements.

The technical terms for businesses that grant funds are often allocated for is based on tax exempt status outlined by the U.S. Department of the Treasury and Internal Revenue Code. Common tax exempt organizations are classified 501(c)(3) and include religious, social, public and not for profit organizations such as schools, social service programs, and associations.

Some grants are not competitive meaning many if not all businesses that qualify for the grant will receive some type of funding. These types of grants are termed 'formula grants' (Waddy. P.53). Competitive grants on the other hand will either gain or lose credibility based on the quality of the application which may or may not receive funding. A type of federal competitive grants is called a 'project grant'.

The application process

The grant application process takes time, and Government grants tend to involve a significant amount of searching and paper work. That is to say the application process can be split into to two main functions  Finding the right grant to apply for and  writing the grant. Finding the right grant to apply for is just as important as writing a strong application. The grant search process can take some time sifting through and analyzing the nexus of grants, expiration dates, and requirements and can be found through government databases a few of which are listed below.

Federal, state and local government grant databases

There are many databases and sub-databases of grants that are interlinked with one another. Taking the time to acclimate and review the different databases is useful in the grant search phase of the grant application process. A few of the online databases listing grants are provided below. If an organization is specific to a particular area of the economy or public service, one may also wish to search through Government departments dealing specifically with those areas of service.

• Catalog of Federal Domestic Assistance: http://www.cfda.gov
• Grants.gov: http:www.grants.gov
• The Grantsmanship Center: http://www.tgci.com/

Grant application items

Before the grant application is written several business items are likely to be needed as grant reviewers want to know a lot about a business and prefer to leave no stone unturned. Finding all the necessary information will likely involve speaking to various department managers and explaining why the information is needed. This in and of itself can take several hours and may require the use of privacy contract if the grant writer is working independently outside the business. A few of the items that may be needed in the application are the following:

• Business objective: Mission statement and purpose of incorporation
• Financial Statements: Balance sheets, Income statements, Cash flow statements etc.
• Tax information: Tax exempt status, income tax returns, Employer ID number(s)
• Historical performance: Past achievements of the business both operationally and financially
• Project descriptions and goals: Illustration of projects past, present and future and implementation.
• Forecasted earnings and expenditures: Projected expenses and earnings.
• Operational outlines: Detailed summaries of day to day business operations.
• Staff information: Number of employees, turnover information, staff biographies

'Writing' the grant

The actual writing of the grant is probably the most fun part because it can be thought of as a creative yet professional venture. An outstanding grant application may be a work of art that pays attention to every detail, is highly organized, extremely well presented, meets application requirements including graphs, pictures, forecasts etc, and is utterly convincing in every respect.

A strong grant is visibly appealing, professionally presented, contextually accurate, complete and thorough in addition to meeting the application requirements. The application requirements vary depending on the level of Government and type of grant, but can get very specific in terms of dollars and cents, project details, implementation etc. The whole grant writing process may take approximately 20-80 hours to complete.

Grants may be awarded based on a point system meaning each section of the application will be worth a specific amount of points and the more the application meets the grant requirements, the more points the application will earn. The applications with the most points at the end of the first screening will be reviewed further in the case of competitive grants.

Since the grant application process can take a lot of time and can be very important to a businesses success, skimping, cutting corners and not paying attention to the application requirements can mean a loss of business resources and time and thus it makes sense to spend time perfecting, reviewing and editing the grant application until it is presentable to the reviewers.

Grant writing tips

There are many government grants available but only a few ways to help ensure winning of those grants. For this reason it may be advisable to study the grant writing process before beginning starting the process of searching and writing the grant. The following tips may be worth considering in the quest for acquiring grant financing.

Be very clear and concise: Grant reviewers don't have all day and want facts not anecdotal information

Have a functional business: A business that is not proven to be functional via an operating track record will not be as competitive as a business that does.

Network: Keeping in touch with grant officials and other grant applicants to stay informed and inform.

Choose the business not the grant:  It is the type of business that will win the grant and not the other way around.

Allocate sufficient time: A rush drop that hasn't undergone final revision may contain mistakes and errors that can lose points in the review process.

Presentation:  How the grant is presented puts a face on the organization. In the case of first time grant applications, the presentation is especially important.

Research: Finding the right grant is an essential first step to acquiring grant funding. Ideally the grant will already be won before the application is even submitted.

To summarize, Government grants are not easy to acquire and are quite involved especially at the Federal level. The whole grant writing process takes substantial time and involves understanding the grant process, searching for the correct grant, finding a grant writer ,gathering grant application materials and writing the grant.

Specific types of businesses are by default tax exempt status more likely to qualify for grant application because of that status and thus eligibility for many grants depends on the type of entity applying for the grant. Although established businesses have a stronger positioning in competitive grant applications, properly completing all the steps in the grant application process from start to finish increases the probability of a business receiving grants.


1. Ellen Karsh and Sue Fox. 'The Only Grant Writing Book You'll Ever Need' New York. 2003 Carroll & Graf Publishers.

2. Thompson, Waddy. 'The Complete Idiots Guide to Grant Writing' New York , 2003. Alpha.

Image license: Anna Lena Schiller,  CC BY-SA 3.0

What is cost accounting?

Cost accounting identifies, documents, implements and resolves business costs for both managerial decision making and financial reporting. Without cost accounting, businesses may have out of control expenses, inefficient business practices, excessive liabilities and no effective cost management systems and solutions. Just as financial accounting is regulated by General Accepted Accounting Principles (GAAP), cost accounting is also regulated by Cost Accounting Standards Cost Accounting Standards (CAS)

Cost accounting that encompasses a process of utilizing cost accounting information for improved business functioning is a helpful if not essential aspect of running a business competitively and efficiently. This article will discuss cost accounting in terms of types of business costs,  cost accounting records,  cost management systems and solutions for cost management.

Types of business costs

Business costs in cost accounting vary from industry to industry and the ideal business has no expenses, which is rare. The different types of costs incurred by a business reflect the management's decision making, the business products and services, and aspects of how a business is operated. Properly identifying business costs is helpful and necessary in preparing and analyzing corporate fundamentals. Some of the business costs handled by cost accounting are listed below:

• Manufacturing costs ex: Nuts and bolts
• Overhead costs ex: Lighting
• Variable and fixed costs ex: Nuts and bolts and salaries
• Direct and indirect costs ex: Paper used for invoices
• Sunk and opportunity costs ex: Investment in equipment