Tuesday, March 6, 2012
BEST BUDGETING TIPS FOR YOUR BUSINESS
How to Budget and Manage Inventory for 2011
If your suppliers can’t meet an increase in demand, neither can you. Here’s how to make sure you’re both ready for better times.
Be careful what you wish for.
If you’re like many small-business owners still struggling to survive in today’s tough economy, what you’re most hoping for in the New Year is an increase in demand. Fact is, however, should orders rise too quickly, you might find yourself in a different type of jam: an inability to come through with the goods, thanks to sparse inventory levels at your suppliers.
In fact, inventories are critically low nationwide. Most companies have an average of less than 29 days of inventory on-hand, an 11.5 percent drop from the year before. That’s the lowest level since 2003, according to a recent analysis of the 1,000 largest public companies in the U.S. by REL, a consulting firm that focuses on working capital performance.
The economy is the driving force of this predicament, of course. Suppliers simply can’t afford to keep a lot of inventory on their shelves. But that creates the potential for a difficult situation. “Inventory levels are at a point where you really need to worry about just how you’re going to meet an upturn in demand,’ says Jerry Mills, CEO of B2B CFO, a provider of temporary CFOs located in Mesa, Arizona.
If you’re projecting increased demand in 2011, your best chance of meeting it is by working closely with your key suppliers now. Here are steps to help you in that process.
Managing Inventory: Get a Backup
When possible, your first step is ensuring you have more than one supplier. Don’t go overboard, however. Two choices is best, advises Ken Kaufman, CEO of CFOwise inPleasant Grove, Utah. The reason: you will find it cumbersome to manage too many supplier relationships.
That said, having extra suppliers also allows you some bargaining room. Take Linda Minde, co-owner of Tri-Lite Builders, a 29-year-old, four-employee Chandler, Arizona, home remodeling company. Several years ago, according to Minde, during busy times, she had to wait as long as six weeks for fixtures and other parts. So Minde sat down with her key suppliers and had a talk, explaining that, while she valued their business, she knew of other companies able to get her supplies in two to three weeks. It worked. “They realized it would help them to help us,’ she says. “The more jobs we can do, the more products they can sell.’ Now, the same vendors usually keep a stock of certain often-used products on hand for Minde, to tide her over when demand spikes.
Managing Inventory: Think “Partner’
Certainly, her suppliers’ loyalty is also a result of Minde’s long relationship with them, as well as many years of paying bills on time and providing a steady, reliable source of business. In fact, with any important vendor, you need to make sure that “you become their favorite customer,’ says Kaufman. Your goal is to encourage vendors to see you as a partner and, as a result, keep you at the top of the list. You can accomplish that by not just paying bills on time, but also responding quickly to questions and being willing to agree to flexible terms. If there’s a problem, says Kaufman, “Don’t pick up the phone and scream. Ask how you can work together to solve the issue.’
Managing Inventory: Budget for Different Scenarios
Now back to those budget spreadsheets that need filling out. Your best bet is to create a minimum of three budgets: one with an aggressive forecast for sales increases; another using more conservative-assumptions; and a third with worst-case scenarios. That's something you should always do, of course. But, in an environment where the prognosis for demand is especially unclear, it's particularly important. Your top consideration should be the effect of increased costs on cash flow, a critical issue when demand increases, since your needs for working capital will also rise.
Managing Inventory: Final Thoughts
Budgeting season is the perfect time to scrutinize vendor relationships. Your suppliers are in all likelihood mapping out their expectations for the year and you can help them do so by providing your outlook. As a best practice, you should share your budget and the variety of scenarios you might face to see whether they can handle each level of demand.
“Ask them, if we're going to grow at this rate, will you be able to accommodate our needs,' says Ken Gaebler, a small-business specialist in Chicago. “If they can't you're probably dealing with the wrong guys anyway.'
Many businesses have failed because they couldn't meet demand. There's no good reason to join those ranks if you plan ahead properly.
THREE BELIEFS WHICH WILL MAKE YOU AN INSTANT SUCCESS
The way you think about yourself and your goals can determine your success and failure in your career and life. Make sure that you have the right attitude. Learn the right strategy for success here!
INC suggests…
What you believe about yourself determines your level of success. If you want to be successful, incorporate the following beliefs into your daily way of thinking:
1. “I am confident.” If you believe in yourself, you tend to see problems and challenges as speed bumps rather than roadblocks, and have certainty that you’ll eventually succeed.
2. “I am committed.” If, in your heart of hearts, you are absolutely determined to succeed, you’ll find that motivation emerges naturally from that commitment.
3. “I am in control.” If you view yourself as the captain of your destiny rather than a pawn of fate, you’ll have the motivation to continue moving forward–even when the going gets a bit rough.
How to Create Failure
On the other hand, if you want to be a failure, incorporate these three very different beliefs into your daily way of thinking:
1. “Nobody believes in me.” Some people define themselves based upon how they suspect their boss, their co-workers, their relatives and friends see them. Convinced that people think poorly of them, such people suffer from low self-esteem and lack of confidence. If you had a big project that needed handling: Would you trust someone who didn’t even trust himself?
2. “I am probably going to fail.” Some people believe that failure is so unpleasant that it must be avoided at all costs. Because of this, they avoid all situations where failure is a risk. But any meaningful endeavor entails risk–so such people seldom (if ever) accomplish anything significant.
3. “Fate controls destiny, so why try?” Some people believe that their status in life and potential as a human being is determined at birth or by the circumstances of their lives. Believing this allows them to deflect the blame for failures onto things over which they have no control, thereby lessening the pain. But it also g
Get more information at INC!
Can ARPA-E Solve Energy Problems?
The young agency is popular, but its short-term research programs aren't enough.
Republicans and Democrats in Congress don't agree on much, especially when it comes to the U.S. Department of Energy, but they agree that the department's Advanced Research Projects Agency for Energy (ARPA-E), is a good thing. Last year, when they were cutting every program in sight, they actually voted to increase the agency's funding by 50 percent. The bipartisan support was clear last week at the agency's third Innovation Summit, attended by a mix of liberal and conservative politicians and business leaders.
ARPA-E has been popular in large part because it's inexpensive—for about the same amount the government gave to failed solar-panel maker Solyndra in the form of a loan guarantee, ARPA-E has funded 180 projects. But how important is the agency for solving major energy challenges like volatile oil prices and climate change? At the summit, several speakers warned that the sort of short-term, two-to-three-year funding that the agency provides isn't enough to address long-term energy problems.
From its beginning, ARPA-E has set relatively modest goals for itself, acknowledging its limits.
"In the energy sector, it takes time for an innovation to go all the way and scale and make a big difference in the commercial market," said Arun Majumdar, ARPA-E's director, in a press conference. "That takes about 10, 15, maybe 20 years. Who knows?" He pointed to other measures of success. The agency has helped increase private investment in energy, he said, noting that 11 of the projects ARPA-E funded—with about $40 million—led to more than $200 million in private-sector funding. He also noted the success of Envia, which has demonstrated a large increase in battery-storage capacity.
During a panel discussion with Energy Secretary Steven Chu, Microsoft founder and chairman Bill Gates warned that energy innovation moves a lot slower than innovation in software. "The IT revolution is the exception that kind of warped people's minds about how quickly things can work," he said. "If you underestimate how hard it is, that's part of why we can end up underfunding the kind of innovative work that needs to go on." He said that energy innovations in the past have taken 50 to 60 years to make an impact.
Chu said that ARPA-E fills a specific role—in some cases, innovations "can find a way to market very quickly." But he said that there is still a need for DOE's longer-term research funding—including Innovation Hubs that focus on a problem for a decade—as well as financing for larger projects, such as loan guarantees.
But some of these larger and longer-term projects are under fire, as can be seen in the congressional investigation of the DOE's loan to Solyndra. "No one can deny that the reaction to Solyndra has had a damping effect on government finance programs for companies," Chu said. But he also said that failure was expected. Congress knew there would be failures when it authorized the loan program; that's why it appropriated $10 billion to cover losses. "It's extremely unfortunate what happened with Solyndra—a half a billion dollar loss," he said. "But I would be personally very surprised if we were to lose a third of that appropriated money."
Gates expects the failure rate for energy innovation funding more broadly will be "well over 90 percent." And he said there's "no clear mapping between the amount you spend on R&D and the amount you get out"—it's possible that the innovations will come from companies that are already well funded now. "But it's more likely that the underfunding is delaying the rate of progress," he said. "This is a very complex set of technologies, and so we need literally thousands of companies trying these things to increase the odds that we will have the 10 or 20 approaches that will get us the magic solution."
New way to measure nitrous oxide
| QUEENSLAND UNIVERSITY OF TECHNOLOGY |
 "Agriculture was responsible for about 20 per cent of greenhouse gas emissions globally, mostly from nitrous oxide from fertilisers..." Image: ozgurdonmaz/iStockphoto An accurate new way to measure a potent greenhouse gas emitted during agricultural production will help countries to better manage their environmental impact, thanks to Queensland University of Technology (QUT) research. Professor Richard Conant, a Smart Futures Fellow at QUT's Institute for Future Environments, said the new state-of-the-art statistical approach would greatly improve estimates of global nitrous oxide (N2O) emissions by up to 65 per cent. "Nitrous oxide contributes substantially to total global greenhouse gas emissions and in some countries it's a big part of total emissions," he said. "We're providing a tool that has significantly improved the accuracy of measuring N2O. "Our hope is that this information will enable developing countries that lack detailed measurements to keep better track of N2O emissions." Professor Conant said agriculture was responsible for about 20 per cent of greenhouse gas emissions globally, mostly from nitrous oxide from fertilisers, and methane generated by livestock. He said, on average, three-quarters of N2O emissions in 2005 came from fertiliser. "CO2 still has the biggest effect on climate change," he said. "Nitrous oxide is more potent but there isn't as much of it." Professor Conant said the researchers, who analysed the proportion of fertilizer lost as nitrous oxide, used ground-breaking data on N2O emissions from fellow QUT Professor Peter Grace. The analysis was conducted with PhD student Aaron Berdanier, now at Duke University. The researchers found that the United States, Europe, East Asia and Japan accounted for nearly 50 per cent of global N2O emissions. Africa and the former USSR contributed 13 per cent of global N2O emissions. However, Professor Conant said it was the efficient use of nitrogen in agriculture that was most important. Countries such as the US, Europe and Japan, for example, used nitrogen more efficiently and produced more food per unit of N2O than countries in Africa and the former USSR. Professor Conant said the research would help developing countries become more efficient in agriculture and increase food security. "This latter group of countries is not using very much nitrogen on their crops, which is affecting their ability to produce food," he said. However, Professor Conant said that increasing the use of fertiliser in agriculture to meet growing food and feed demands could accelerate N2O emissions faster than previously thought. "In agriculture, producers generally have been trying to increase yields and productivity, but we haven't thought as much about externalities in terms of nitrogen pollution and greenhouse gases," he said. Professor Conant, who was among scientists awarded the Nobel Prize with former US vice-president Al Gore in 2007, said his research would contribute towards an Intergovernmental Panel on Climate Change (IPCC) report, which will set the standard estimate of global emissions for different sectors. An IPCC report in 2004 found 36 gigatons of CO2 was emitted into the environment a year, compared to three gigatons of nitrous oxide and 4.5 gigatons of methane. Professor Conant's research paper, Regionally-differentiated estimates of cropland N2O emissions reduce uncertainty in global calculations, was published in the journal Global Change Biology. Editor's Note: Original news release can be found here. |
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