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BusinessWorks Inc - A Dotcom in making

This blog is intended to stir your entrepreneurial spirit and get going with your own business. It tries to capture day-to-day issues related with a upcoming startup business. If you follow this blog long enough, it may take you from Concept to Wall Street. I invite you to submit your ideas and comments.

"BusinessWorks Blog is a must read for any would-be entrepreneur unaware of the painstaking process of building a business" - FORBES Best of Web

The Power of BusinessWorks is in the way it uses the blog format as an integral part of a process, to solve a business problem. - Small Business Trends PowerBlog Review

Google
 
Web BusinessWorks

New BusinessWorks site is up and running.

Sunday, August 21, 2005
Finally, the new site is up and running. There are few updates left to be done, but it wont affect you, the readers. All previous posts are in the process of being categorized, but it takes time. Meanwhile, you will be able to search keywords and hopefully find what you are looking for in this blog. The conversion from Blogger to Wordpress was a relatively painless process, with some help from the online resources and my son.

Please note this website will remain online as long as possible. However new posts will only appear at the new website.

This transition changes few things:

Please update your subscriptions if you are using any RSS readers. Here is the link http://feeds.feedburner.com/BusinessworksInc .

New Url for the BusinessWorks Site is http://businessworks.ideologicllc.com. Please update your bookmarks.

A note to New Visitors:

BusinessWorks has moved to http://businessworks.ideologicllc.com.

See you all there!
8/21/2005 03:57:00 PM :: ::

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Entrepreneurs Beware! Working long hours can be injurious to your health

Friday, August 19, 2005
It is not uncommon for entrepreneurs to work long hours during start-ups and long time afterwards. This does take a toll on entrepreneurs. Long hours can increase the risk of injuries and health. Statistics are scary. 61% of people faced chances of injury during overtime and injuries were not restricted to any particular segment of the industry. It affected non-labor intensive jobs too. Read this article on Red Herring website.
8/19/2005 11:48:00 PM :: 1 comments ::

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Omaha - A Billionaire building City?

Monday, August 15, 2005
My friend Jerry, passed an article to me from USA Today, Monday August 8, 2005 Edition about Omaha. This article is very interesting, so I thought of sharing with you, my readers. Although New York, Los Angeles and San Francisco boast of top 3 three positions in terms of number of billionaires, Omaha is eighth in terms of "per 1 million people", which is way above Los Angeles, Chicago and New York. Apart from numbers game, Omaha is a wonderful place for many things like raising a family, creating billionaires and generating entrepreneurs like me :-). Omaha has so far given 4 actors, 1 president, 1 baseball player,1 Civil Rights Leader and three billionaires to the world. Mention of Omaha is incomplete without the Sage of Omaha, Warren Buffet. So what is the secret of Omaha's success? Is it quality of life? Short commutes to work? Excellent ethics? Decide for yourself by reading the article or better still, by visiting Omaha. Do drop me a line when you visit the city famous for Omaha Steaks.

Changing gears, here is a screenshot of the new Businessworks site.


Visit the Preview site here. Please let me know your comments about this site at businessorati -at gmail -dot- com.
8/15/2005 10:11:00 PM :: 0 comments ::

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Carnival of Capitalist is up at Weekend Pundit - 15-Aug-2005

Sunday, August 14, 2005
Another excellent edition of Carnival of Capitalists is up a day early at Weekend Pundit. As usual we have excellent business posts from stalwarts like Anita Campbell of Small Business Trends, Wayne Hulbert of Blog Business World, Yvonne DiVita of Lipsticking and many others including yours truly with his post about Business FAQ blog at Ideologic L.L.C.
8/14/2005 05:04:00 PM :: 1 comments ::

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Transition from Blogger to WordPress

BusinessWorks Blog will be celebrating it's First Birthday on September 24th, 2005. It is already experiencing growing pains. Google's Blogger is my current Blogging Engine and it has served me well, but it lacks a few critical features like Categories, Search facility, trackbacks that a Blog like mine needs. I am planning to move the blog to a different host and use WordPress as my Blogging Engine. To better serve my readers, each post will be categorized and search will be embedded in the page to find the content you need. There will be lot more features added, with a new theme, current month calendar to find the posts and much more. Current Blog will remain active during the process and once the transition is complete, it will redirect visitors to the new blog.

Please bear with me for the inconvenience caused, until this transition is completed. The posts will be sporadic and few in coming week, but once the transition is complete, it will be atleast one post per day as usual.
8/14/2005 12:11:00 PM :: 1 comments ::

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Investment Analysis Methodologies - Discounted Cash Flow

Saturday, August 13, 2005
Venture Capitalists, in absence of a solid predictable path, rely on these popular methodologies to arrive at crucial decisions about investments. Discounted cash flow and compound interest are two sides of a coin.

As we know, a dollar you have today is worth more than a dollar you'll have at some point in future, because you can invest today's dollar and earn interest on it starting today. Inflation hasn't eroded today's dollar yet.

Conversely it is true that a future dollar is worth less in today's terms so it has to be discounted to get it's present value. "Discounting" is a way of expressing the loss of interest income and/or erosion by inflation that you suffer by not getting that dollar until some point in the future.

There are ready tables available that shows how much $100, to be paid at the end of various periods in the future, is currently worth, with interest at different rates, compounded annually.

To use the table, find the vertical column under your interest rate (your cost of capital). Then find the horizontal row corresponding to the number of years it will take to receive the payment. The point at which the column and the row intersect is your present value of $100. You can multiply this value by the number of dollars you expect to receive, in order to find the present value of the amount you expect.



net present value of $100 table
years9.0%9.5%10.0%10.5%
1$91.74$91.32$90.90$90.49
2$84.16$83.40$82.64$81.89
3$77.21$76.16$75.13$74.11
4$70.84$69.55$68.30$67.07
5$64.99$63.52$62.09$60.70
6$59.62$58.01$56.44$54.93
7$54.70$52.97$51.31$49.71
8$50.18$48.38$46.65$44.98
9$46.04$44.18$42.40$40.71
10$42.24$40.35$38.55$36.84


So for example if a Venture Capitalist has to wait for 6 years before he can expect any profits from the venture. Next he assumes 10% interest (cost of capital). After 6 years, his capital of $1,000,000 will be worth $564,400 in today's dollars! That is the time value of the money.
8/13/2005 06:03:00 PM :: ::

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Investment Analysis Methodologies - Discounted Cash Flow

Venture Capitalists, in absence of a solid predictable path, rely on these popular methodologies to arrive at crucial decisions about investments. Discounted cash flow and compound interest are two sides of a coin.

As we know, a dollar you have today is worth more than a dollar you'll have at some point in future, because you can invest today's dollar and earn interest on it starting today. Inflation hasn't eroded today's dollar yet.

Conversely it is true that a future dollar is worth less in today's terms so it has to be discounted to get it's present value. "Discounting" is a way of expressing the loss of interest income and/or erosion by inflation that you suffer by not getting that dollar until some point in the future.

There are ready tables available that shows how much $100, to be paid at the end of various periods in the future, is currently worth, with interest at different rates, compounded annually.

To use the table, find the vertical column under your interest rate (your cost of capital). Then find the horizontal row corresponding to the number of years it will take to receive the payment. The point at which the column and the row intersect is your present value of $100. You can multiply this value by the number of dollars you expect to receive, in order to find the present value of the amount you expect.



net present value of $100 table
years9.0%9.5%10.0%10.5%
1$91.74$91.32$90.90$90.49
2$84.16$83.40$82.64$81.89
3$77.21$76.16$75.13$74.11
4$70.84$69.55$68.30$67.07
5$64.99$63.52$62.09$60.70
6$59.62$58.01$56.44$54.93
7$54.70$52.97$51.31$49.71
8$50.18$48.38$46.65$44.98
9$46.04$44.18$42.40$40.71
10$42.24$40.35$38.55$36.84


So for example if a Venture Capitalist has to wait for 6 years before he can expect any profits from the venture. Next he assumes 10% interest (cost of capital). After 6 years, his capital of $1,000,000 will be worth $564,400 in today's dollars! That is the time value of the money.
8/13/2005 05:57:00 PM :: ::

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Investment Analysis Methodologies - Discounted Cash Flow

Thursday, August 11, 2005
Venture Capitalists, in absence of a solid predictable path, rely on these popular methodologies to arrive at crucial decisions about investments. Discounted cash flow and compound interest are two sides of a coin.

As we know, a dollar you have today is worth more than a dollar you'll have at some point in future, because you can invest today's dollar and earn interest on it starting today. Inflation hasn't eroded today's dollar yet.

Conversely it is true that a future dollar is worth less in today's terms so it has to be discounted to get it's present value. "Discounting" is a way of expressing the loss of interest income and/or erosion by inflation that you suffer by not getting that dollar until some point in the future.

There are ready tables available that shows how much $100, to be paid at the end of various periods in the future, is currently worth, with interest at different rates, compounded annually.

To use the table, find the vertical column under your interest rate (your cost of capital). Then find the horizontal row corresponding to the number of years it will take to receive the payment. The point at which the column and the row intersect is your present value of $100. You can multiply this value by the number of dollars you expect to receive, in order to find the present value of the amount you expect.



net present value of $100 table
years9.0%9.5%10.0%10.5%
1$91.74$91.32$90.90$90.49
2$84.16$83.40$82.64$81.89
3$77.21$76.16$75.13$74.11
4$70.84$69.55$68.30$67.07
5$64.99$63.52$62.09$60.70
6$59.62$58.01$56.44$54.93
7$54.70$52.97$51.31$49.71
8$50.18$48.38$46.65$44.98
9$46.04$44.18$42.40$40.71
10$42.24$40.35$38.55$36.84


So for example if a Venture Capitalist has to wait for 6 years before he can expect any profits from the venture. Next he assumes 10% interest (cost of capital). After 6 years, his capital of $1,000,000 will be worth $564,400 in today's dollars! That is the time value of the money.
8/11/2005 11:47:00 PM :: ::

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Investment Analysis Methodologies - Internal Rate of Return

Tuesday, August 09, 2005
Time value of money is one of the most important yardstick used by Venture Capitalists before investing. The internal rate of return (IRR) method of analyzing an investment utilizes the time value of money. This parameter provides you an option of calculating interest rate that is equivalent to the dollar returns that you expect from an investment. This helps you in comparing to the rate you can earn by investing in projects of similar merits.

Lower Internal Rate of Return with respect to cost of borrowing indicates a money losing proposition. So typically a Venture Capitalist will be looking for reasonably high Internal Rate of Return when compared with Cost of borrowing. This is expected as Venture Capitalist is in the market to make money for the risk taken, time spent and trouble taken.

Let us consider an example. A venture capitalist is studying an investment where initial cost of the project is $750,000 and expected return is $200,000 per year for next 5 years or $1,000,000 in total. So Internal Rate of Return here is 10%. Suppose cost of borrowing is 2%. That gives the Venture Capitalist has a margin of 8% which may be worth his while to invest in the project.

Cash flow evaluation and not income from investment is the goal of Internal Rate of Return Analysis, as Income from investment is a skewed figure as it includes depreciation etc.

8/09/2005 10:13:00 PM :: 0 comments ::

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Investment Analysis Methodologies - Payback Period

Monday, August 08, 2005
If you enter the mind of a Venture Capitalist, you may find amongst other things, a formula that gives him an estimate about when he can realize some profits from a startup. It is called Payback Period. It tells you, how long will it take to recover your investments and be profitable. The formula to calculate Payback Period is simple enough.

All you do is divide Investment by Annual Cash flow to get Payback Period. So suppose if Investment cost is $1,000,000 and Annual Cash Flow expected is $125,000, then Payback Period is 8 years.

However in real world, you can never expect to have a constant Annual Cash Flow every year. So, expected return for each year is added until total cost of Investment is arrived.

YearReturnCummulative Project Cost
1$125,000$125,000
2$175,000$300,000
3$225,000$525,000
4$250,000$775,000
5$250,000$1,025,000


In the table above, Investment cost will be recovered just shy of Five years. So when a Venture Capitalist has three competing projects, he may consider Payback period amongst other things and go for the project that has the shortest Payback Period. As with any other method, this method has a disadvantage that it ignores time value of the money. However if this method is used in conjunction with the Net Present Value and Internal Rate of Return, it is a great tool for the Venture Capitalist.

As an Entrepreneur, when you prepare your projections, you must be careful with your calculations so that decision process is smoother and in your favour. Who knows, when a Venture Capitalist is comparing your project with other projects with similar merits, you may come out as a winner due to your realistic projections.
8/08/2005 09:56:00 PM :: 0 comments ::

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Investment Analysis Methodologies - Net Present Value

Sunday, August 07, 2005
We all know, task of a Venture Capitalist is not an easy one. It is not an easy job to calculate the risk in investing in a start-up, but they have to start somewhere. Net Present Value is one such method that is used to analyze the profitability of an investment.

The Net Present Value method (NPV) of evaluating a major investment allows you to consider the time value of money. Essentially, it helps you find the present value in "today's dollars" of the future net cash flow of a project. Then, you can compare that amount with the amount of money needed to implement the project.

If the NPV is greater than the cost, the project will be profitable for you (assuming, of course, that your estimated cash flow is reasonably close to reality). If you have more than one project on the table, you can compute the NPV of both, and choose the one with the greatest difference between NPV and cost. Let us take an example here:

ProjectInitial CostYear 1Year 2Year 3Year 4Year 5Year 6Present ValueNet Present Value
Startup One$10,000$2700$2600$2400$2800$1342$1444$13,286$3286
Startup Two$10,000$2000$2000$2000$500$500$3000$10,000$0
Startup Three$10,000$4000$500$500$500$500$1000$7000-$3000


As an example of how NPV works, let's say you're looking at a project "Startup One" costing $10,000 that is expected to return a total of $13,286 in a period of 6 years. Using NPV analysis you can determine that if the discount rate on the project was 10 percent, the net present value of the expected returns would be $9,967.28. In other words, if you had $9,967.28 today and invested it at 10 percent, after six years you'd wind up with $18,116.67, much more than your return on your project. Thus, it looks as if the expected additional return on the project has shrunk to about $4,830.67, which may not be worth all the time and effort you'd have to put in. Although Startup One seemed to be a profitable proposition as per the table, you just saw it was not very profitable.

NPV analysis is generally used to evaluate the project's cash flows. Although NPV is widely used in Investment decisions, it has disadvantage of not being flexible enough to account for flexibility / uncertainty associated with the project decision.

How do you compute NPV? The easiest way is to use a good financial calculator or Microsoft Excel Spreadsheet's Financial function (NPV). There are online calculators available to perform this calculation.

8/07/2005 08:44:00 PM :: 0 comments ::

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Investment Analysis Methodologies - Introduction

Friday, August 05, 2005
We have learnt a lot about "What and How" to pitch to Venture Capitalists, but have you ever wondered what is going on in Venture Capitalist's brain? What is the math and science behind VC's investment decisions? Would it not be great to understand the basis of VC's decisions? So I decided to go behind the scenes and get those formulae and present them here and try to explain them in layman terms. Please remember there are other criteria used by investors, my purpose here is to help entrepreneurs tailor their projections in such a way that it increases the probability of their success.
Here are some of the popular methodologies:

* Net Present Value (NPV) - Capital budgeting where the present value of cash inflows is subtracted by the present value of cash outflows
* Payback Period - Initial Outlay Recovery Period
* Internal Rate of Return (IRR) - the return that a company would earn if they expanded or invested in themselves, rather than investing that money abroad.
* Book Rate of Return - Profit from Investment to Initial Capital Outlay Ratio
* Discounted Cash Flows (DCF) - Attractiveness of an Investment opportunity.

I will be discussing each methodology in upcoming posts in layman terms. Have a wonderful weekend.

8/05/2005 10:57:00 PM :: 0 comments ::

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10 principles of Money Mastery

Thursday, August 04, 2005
This is actually a review of a book that I came across other day. It is a very relevant book for entrepreneurs as well as anyone else who is trying to fight a battle against debt or simply trying to get best value for their dollar. Book is divided in two parts, one is Money Mastery Principles and other is Tax Strategies. I will review this book from entrepreneur's point of view.

If you read the titles of ten chapters, complete Part One can be summarized as "Money is emotional, track it, control it! There is no such thing as savings, To power down your debt, you got to know the rules of the game as the rules are always changing, So always look at the big picture, organize the wealth, understand taxation and put your money in motion".

As reasonable human beings, we know money is important and it should be spent with care, but we being emotional, spend money emotionally. Men spend on Gadgets and cars and women spend on clothes. This book teaches commonsense principles about money. Authors advise to track what you spend and control the emotions and savings is defined as "delayed spending", which is a very interesting concept. An entrepreneur is a family person too. He / she has obligations towards family, pay mortgage and other bills. This book promises to get the reader out of debt, pay off mortgage in nine years or less and teaches how to reduce taxes by 50% legally, using "Power down" method. Authors Alan M. Williams, Peter R.Jeppson and Sanford C. Botkin also conduct "Money Mastery" classes. If you think, this reasonably priced book will help you achieve control over money, buy it from your nearest store or click the link below.

8/04/2005 10:58:00 PM :: 0 comments ::

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Resources for Market and Industry Research

Wednesday, August 03, 2005
I have gathered few resources for my personal use, but would love to share with my readers. I hope this will help busy entrepreneurs as I think time spent on research is time well spent.

My first resource is EBSCO Information Services. This website catalogues business journals, magazines and trade journals. Many local and regional business publications are included. There are quite a few full text articles to read. Subscription is required.

Other resource is ABI / INFORM. This site has a database covering business, management, economics and a wide range of related fields. It provides abstracts of material from 1971 onwards and full text (various formats) from 1987. Subscription is required.

Lexis Nexis Academic is another excellent resource which has full text information of newspapers, news magazines, trade and industry publications. Subscription is required.

For a reason, I have not included any free resources. For serious research, one must go to a reliable source.
8/03/2005 10:21:00 PM :: 0 comments ::

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20 Questions to ask before starting a business

Tuesday, August 02, 2005
Starting your own business and becoming an entrepreneur is no easy task. As I said in my previous posts, a would-be entrepreneur need to evaluate himself/herself before actually starting the business. Here is a handy list of questions to ask and answer convincingly and in great detail.

1. What is the product or service?
2. Can I describe the product in three to four sentences?
3. What is the target market for the product or service?
4. Is this product or service practical? feasible?
5. Is there a demand for the product after discounting for existing suppliers?
6. What is the price I can get for the product?
7. What are the qualities that will give me an advantage over other businesses?
8. Where will the business be located?
9. What is the advantage in locating the business in a particular location? Availability of raw material? close to target market?
10. Do I need to consider any zoning or fire regulations or restrictions before opening the business?
11. Is any permit or license needed to start the business?
12. What will be the legal structure of the business? 'C' corp., 'S' corp., LLC or Sole Proprietership?
13. What equipment, plant, machinery, raw material and supplies needed?
14. What type of commercial and professional insurance is needed?
15. What is the inventory of skills and experience? self? in surrounding areas?
16. How much capital is needed for startup and maintenance of the business?
17. What are the financial resources available?
18. How do I identify and reach my customers? marketing? website? weblog? mailings?
19. What will be my day to day operations plan? procedures?
20. How and when do I compensate myself?





8/02/2005 11:09:00 PM :: 4 comments ::

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Skype - Indispensable tool for an Entrepreneur

Monday, August 01, 2005
A dollar saved is a dollar earned. An entrepreneur has to be spendthrift where possible. I am always on lookout for low-cost or almost free, time saving, efficiency improving tools. Today I came across Skype, which is one such tool.

Skype has been around for quite sometime. I know, I am late to the game but I discovered today, how indispensable Skype is for an entrepreneur. For those of you, who are like me, late to catch on to the Skype wave, this is a tool to make free calls over the internet to anyone else who also has Skype and believe me there are lot of people around the world who do have Skype. I tried out Skype half way accross the world and voice quality was amazingly crystal clear like a conventional phone. This services is free. There are other value-added ancillary services by Skype which are of great value to an entrepreneur. First one is SkypeOut which you can use to call any ordinary phone from Skype. Then there is SkypeIn, which is a real phone number your business contacts can call . You can pick up this call in Skype. Skype Voicemail lets you direct calls when you are offline or busy to your voicemail.

I am particularly excited by the news today where a start-up company is piggybacking on Skype to bring free international phone calls from cell phones. They plan to offer this service free initially and eventually charge $9.95 a year. I also came across a Skype related service called Skypable that informs a caller about your status. All you got to do is put a link on your website to display your status.

You can reach me via Skype using my ID: Businessorati or simply click on the "Skype Me" button on the left.
8/01/2005 11:29:00 PM :: 0 comments ::

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