Posts

Strategies for Operating a Cash-Strapped Business

Strategies for Operating a Cash-Strapped Business

Cash flow is the lifeblood of any business and a fundamental factor when it comes to growth and longevity. Today, cash-strapped businesses are easily forced to the brink of failure with the difficult process of trying to get credit or a bank loans. It’s important that entrepreneurs understand from the get go that they can’t operate for long if their cash outflow is greater than cash inflow. All companies, especially startups, need to conscientiously monitor their cash flow to prevent disruption to the business.

Strategies for Operating a Cash-Strapped Business

A substantial percentage of cash flow challenges arise because business owners haven’t invested enough time estimating the potential revenue streams achievable and balance it against their obligation to pay out expenses. As a business owner, you should know the importance of calculating precise cash flow forecasts. If you don’t appropriately estimate your cash flow for the day, week, month and quarter, you’re going to be putting your company at risk.

From the first day you start your business, you need to track and manage your cash flow, including paying your employees, vendors and others against the time frame in which you collect payment from your clients. Make sure that you time cash inflow to arrive before payments to others are due. You should also set up cash reserves to smooth out the bumpy road.

Quality Product or Service is First!

You should always focus on the quality of your products and services before you decide to cut costs. Your business won’t survive if what you’re offering is fatally flawed. You may decide to outsource some of the work to keep employment expenses low.

Customer Service is Second!

Providing superior customer service will give any business a competitive edge. Sure, most consumers want to save as much money as possible on transactions, but they also expect a positive customer service experience.

Before you cut prices to match or beat the competition, focus on improving your customer service skills. When customers email, message or call, make sure that they receive real help instead of empty promises or excuses. If you have a designated customer service employee or department, ensure that they can quickly and efficiently respond to dissatisfied customers. If you cut employment costs by outsourcing this function make sure that you’ve picked a good agency and that you’re following employment law.

By having a well thought out customer service strategy in place, you’ll give your clients a reason to continue doing business with you, regardless of whether your prices are somewhat more expensive than your competitors. Mistakes are going to happen, but if you have effective customer service strategies along with a great product or services in place, most consumers will be more likely to overlook the occasional mistake.

When it comes to business success, cash is always king and cash flow should always be priority #1. Let’s work together to come up with a strategy for your business. Call me today to discuss.

Why Are Net Income and Cash Flow from Operating Activities Different?

Why Are Net Income and Cash Flow from Operating Activities Different?

It’s important for businesses to understand cash flow. Cash is what keeps a business operating smoothly. You obviously need profit, but equally as critical is your cash flow. You must have a firm understanding all the financial facets of your business, from net income to cash flow from operating activities. Here are the basics.

What is Net Income?

Net income is the mathematical outcome of gains and revenues, minus the cost of products and solutions sold as well as losses and expenses. Net income appears on your income statement as a net gain. If the net amount is negative, it is referred to as a net loss.

What is Cash Flow from Operating Activities?

Cash from operating activities is net cash inflow documented in the first section of cash flow statements. Cash from operating activities is focused on the outflows and inflows from primary activities such as providing services, buying and selling merchandise, etc.

Cash from operating activities doesn’t include the amount of money spent on capital expenditures such as new facilities or equipment, cash garnered from the sale of long-term assets or cash utilized for other long-term investments. `

Here’s How They’re Different

Net income and cash flow from operating activities are different for many reasons.

  • Reason #1: Cash flows from operating activities include specific items that are addressed distinctly on the income statement. Non-cash expenses, including depreciation, share-based compensation and amortization need to be included in order to calculate net profit. These types of expenses are incorporated back into net income on the associated cash flow statement. They reduce net income but do not affect net cash flows.
  • Reason #2: Net income is a line item found in the operating activities area of the cash flow statement. Cash flow from operating activities includes the sum of net income, changes in working capital and changes for non-cash expenses. Increases of existing assets, including accounts receivables, inventories, and deferred revenue are viewed as uses of cash. Reductions in these types of assets are considered sources of cash. In the same manner, decreases in current financial obligations, including accrued expenses, accounts payable and tax liabilities are considered are considered uses of cash.
  • Reason #3: Another reason they are different has to do with timing. Differences exist between the recognition of revenue and expense and the various underlying cash flows.

Once you understand the difference between net income and cash flow from operating activities, you’ll be on your way to fully comprehending the health of your business. But, what happens when your business is cash strapped? I’ll share strategies in my next post so stay tuned.

Loan Requirements for Small Businesses

If you’re looking for a loan for your small business, consider yourself normal.small business loan In fact, 80% of small businesses need some sort of financing. While larger banks have cut funding over the last few years, local banks seem to be loosening the purse strings a little bit more. Since 2007, small-business loan volume at smaller, more local banks grew by $17 billion.

Loan Requirements

Every small business loan program is different and may have different requirements. However, it’s likely that you’ll submit similar information to your loan officers. Getting organized will save you time in the long run. Before you start the application process consider gathering the following information in one place:

  • Personal Information: You’ll probably be asked to provide a history of personal information, such as residential addresses, names, criminal record, educational background, employment history, tax returns, bank statements, social media activity and credit reports. Remember to review your credit reports for inaccuracies as they can significantly impact whether or not the bank approves your loan. Signed personal financial statements may be required if you have more than a 20% stake in your business.
  • Business Plan: All small business loan programs require a documented business plan with financial statements, including profit and loss, cash flow and a balance sheet.
  • Business Financials: Be prepared to submit bank statements, tax returns, and a credit report for your business. As with your personal credit report, it’s important to review your business credit report for inaccuracies. You may also be required to provide projected financial statements as part of your business plan or as individual documents.
  • Collateral: If your business requires a higher-risk loan, you’ll need to provide collateral to secure the loan. Your collateral document will include the value and cost of personal or business property used to secure the loan.
  • Legal Documents: In addition to the items above, you may have to submit multiple legal documents, such as business licenses, registrations, Articles of Incorporation, third-party contracts, franchise and lease agreements.

If you’re just starting out, it’s likely that you’ll have a tough time securing a small business loan. Don’t give up. Start with a small business credit card and build up your financial reputation. You can read my latest article on small business credit card requirements to get started. In my next post, I’ll list some alternative and more creative ways of funding. Until then, let me help you get your business financially sound and on the right path. Contact me today.

Four Ways to Accumulate Cash in Your Small Business for Corporate Tax Filing

If you read my last article and prepared your financial statements it’s likely that you have a  solid picture of your 2013 taxable income.

Accumulate Cash in Your Small Business

Username 401K under the Creative Commons License

Hopefully, you made a profit this year and now you’re faced with making a good decision on how to invest it and grow your business. Having extra money at the end of the year could mean a new vehicle, better training for your employees, or an amped up marketing campaign. It can be very tempting to use the money that you know needs to go towards your tax liability to better your business and choose not to save for the payment due on March 15, 2014. This can be risky, but with proper planning you can invest in your business and still have the money that you need to pay the government. Here are Four Ways to Accumulate Cash in Your Small Business for Corporate Tax Filing on March 15th.

Customer Incentives

Consumers love to feel appreciated and needed by the businesses they patronize, and the holidays are the perfect time to show that appreciation. Offering a small customer incentive is a great way to increase your sales. As the busiest shopping season of the year ramps up, every person is looking for a great deal. Service industries could offer a discount with an annual renewal or new contract signed, a complementary service for a friend when another one is purchased, or a free downloadable e-book with tips and strategies relevant to the business. Consider what low cost gift could bring more clients this season and weigh the benefits of investing your capital in that gift. Alternatively, assess what products or services aren’t selling well and consider revamping them or giving them away in a contest or sweepstakes.

Marketing

Marketing is extremely important for small businesses at every time of the year, but especially as we approach tax season. Investing your income in a larger marketing campaign could not only help you earn the money to pay your taxes, but also increase your overall income. The key here is to employ relevant marketing techniques, targeting customers who are most likely to visit your store and spend their money. Consider reviewing your marketing campaigns to your Profit and Loss statement to determine which campaigns provide a solid ROI. If you’re using QuickBooks, you can use the customizable feature to track the advertising method that brought clients to your business.

Cut Expenses

Cutting unnecessary expenses is always a good thing, but if you are struggling to come up with enough money to pay your taxes, it is especially important. Take a few days to evaluate your business and take note of any areas of excess. This may uncover some difficult truths, if, for example, you have an employee who is slacking off and costing you sales while happily taking salary. It’s important to ensure that you have good hiring practices in place so you can reduce the necessity of firing a unproductive employee. It doesn’t have to be as extreme as firing someone. It can be as simple as going paperless or switching phone service providers.

Employee Training

Most small businesses rely on their employees as their greatest source of revenue. If you have great salesmen, you get more business. If you have even one who routinely offends or bothers your customers, you could have money walking out the door, even if you have the best prices and products in town. A simple training seminar could be just what your employees need to refresh their skills and remind them of the importance of every customer. With better sales techniques, your employees will be able to rev up their conversions and help you prepare to pay your tax liability.

Accumulate Cash in Your Small Business

It’s important to have a plan to accumulate the cash you need to pay your corporate tax bill. Penalties and interest payments are a waste of money and an indication of poor business practices. I can help you gain control of your cash flow by setting up an efficient system and training you or your personnel on it. If you already have a system, I can help oversea it, identify gaps, and recommend solutions that improve your bottom line. Let me help unload some of the burdens of your business. Contact me today.

Gain a Holistic View of Your Small Business 2013 Taxable Income

2013 taxable income

Image provided by username 401K under the Creative Commons License

December 31st is just around the corner. It’s time to gain a holistic view of your small business 2013 taxable income so that you can prepare yourself for filing your corporate tax returns.  As a small business, it can be difficult to know where to start. In fact,  you may be tempted to put it off until the only options are to hire a tax preparer or make a dangerous slap-dash attempt at the forms. Incorrectly filing your taxes could lead to  significant problems down the line, including audits, penalties and allegations of fraud—even if the fraud is unintentional.

The only way to avoid the possibility of these problems is to gain a complete picture of the 2013 taxable income for your small business by the end of the year. This will provide you with some time, before tax season actually rolls around, to ensure you have the necessary capital and all the correct paperwork to pay your taxes correctly and efficiently. Allocating a little time today to prepare will make filing on March 15th less stressful for you and those around you.

Your Small Business 2013 Taxable Income

Here are four easy steps that you can take to prepare your small business 2013 taxable income picture:

Step One: Gather your bank statements. Your bank statements should provide a clear and concise picture of every income and expenditure your business has accumulated over the past year. Review your statements for accuracy.  Understanding where your cash comes from, where it goes, and at what intervals can help provide the most complete picture of your total income and expenses for the year. Many business expenses, especially for small businesses, can be translated into tax deductions. It’s a great idea to make a list of these potential tax deductions while you have your bank statements handy.

Step Two: Establish a balance sheet. Your businesses balance sheet is the statement of  financial position. It provides a single snapshot of your assets, liabilities, and ownership equity. Whether you use a program such as Quickbooks or a simple spreadsheet, a balance sheet will help you not only see the entire financial picture, but also help you keep track of them in the future. Organization leads to better business practices and fewer costs in the long run.

Step Three: Create a profit and loss statement. This document, based on the information gleaned from your bank statements and balance sheet, will provide you with one solid number. This is your net income, and is the money that you will be taxed on. The most important part of filing taxes is to provide adequate documentation for all of your money, both as it comes in and leaves your business. These three steps can help you get organized and prepare your business for the 2013 tax season.

Step Four: Get ready for next year. Having just compiled all of the information necessary for this year’s taxes, learn from this experience to become better organized next year. If your money is spread across more than one bank account, consolidate it. If you had trouble remembering what money was spent where, create an organizational system that allows you to document your expenses as they happen. Taking small steps now is the key to making this process less time consuming in the future.

The key to long-lasting success is always knowing where your business stands financially. As your business grows, it’s critical to have the right team in place. I can help you find the right accountant, bookkeeper, or other financial personnel by working with you to identify the necessary skills, knowledge, an attributes of a successful financial role. How can I help you prepare for success this year and beyond? Contact me today and we’ll get started.

Retirement Dreams Require Personal Financial Responsibility

This past year has undoubtedly been the best for the economy since the recession.Personal Financial Responsibility With new tax incentives kicking in, companies are finally seeing profits, where they were just barely, (often not at all) covering their expenses. The economy is expanding again, which is great for everyone involved, but it also means that many businesses are growing complacent. With cash on hand, they are paying off their bills and neglecting to prepare budgets, manage cash flow, and make projections about further growth.

It is this kind of attitude that is perpetuating a recessed economy. Small businesses must continue to plan for the future of their business and their retirement. Some of the recent economic growth can be attributed to the dispersion of bailout funds in the last four years. However, according to the August 2013 issue of The Kiplinger Letter, by 2016 that money will disappear. The economy will begin to shrink again and businesses will find themselves in deficit once again. By 2024, America is going to see interest payments on the national debt quadruple. That’s a serious cash flow issue, and why? Because saving has not been built into the budget. Don’t let this be the fate of your business and your retirement. Now is the time to plan for the success of not only your business, but for your retirement too.

Prepare a Budget with Future Deficits in Mind

Most companies already have a budget, at least a loose one. You know how much you have to pay in expenses such as, employee salaries, benefits, location rentals, lighting, insurance, etc. In general, you know how much money you have to spend every month in order to keep the lights on. In reality, you need to know exactly how much money leaves your account every month. Not only will this help you realize and eliminate waste from your spending, it will allow you to get a hold of your money and make it work for you.

Outside of the minor ups and downs that every business experiences, you need to be prepared for serious financial difficulties. Saving money isn’t just for individual households, as even the government has come to realize this year. Don’t spend every last dollar just because you have more dollars than bills this month. Next month or next year, the situation may be reversed. Think critically about where you can cut your budget and where you can save.

 Focus on Cash Flow

No matter what your business is, you probably have a good idea of where your money comes from and where it goes. You know your target market, and you know that those people are going to be the source of your income. Now, consider carefully how to tap that money source when you are seeing cash flow problems. In conjunction with formulating a living and budgeting, create a contingency plan that you can implement when sales are slow. Whether this is an aggressive marketing campaign or a new product or service, have a list of ideas and feasible enactment strategies that can help loosen your cash flow when money is tight.

Personal Financial Responsibility

If you want to retire you have to take personal financial responsibility for your business. We can help with cash flow management savings, preparing budgets, cash flow projections, and tying in your marketing plan with your business plan. When you create a good financial structure, your accountant will have less to give to the IRS and more to your bottom line.

Are you ready to live your retirement dreams? Preparation is key and we can help you get there. Call us today so that we can help you chart a better course for your business.