The Business Edge Blog

December 18, 2012

Cash Flow Essentials for 2013

Wad of cash

I’ve talked about it before, but I think it’s worth talking about again as we head into a new year…….Cash is the lifeblood of every business.  Cash Flow is the movement of money into and out of your business.  It’s the cycle of revenue and expenses that make your business a “going concern” or not.

Cash Flow Management is the process of monitoring, analyzing and adjusting your income and expenses to maintain solvency.  I have seen highly profitable businesses go bankrupt because of poor cash flow management.

In good times and in bad there are two strategies of Cash Flow Management that small businesses need to implement to head off cash flow problems:

1)      Project cash flow for the coming months.  If you haven’t invested in an accounting package yet, do so now so that you use it throughout 2013.  The most common programs have built-in reporting features that make projections easy.

2)      Develop and implement strategies to maintain an adequate cash flow.  Push to collect accounts receivables faster – consider Due on Receipt terms – or invoice more frequently if you only invoice monthly now.  Pay your accounts payable on their due date, not before and not after – both cost you more money.

Before working with me, some of my business coaching clients have made the following mistakes that I want to be sure you avoid:

  • Not creating projections at all.  They try to manage cash flow by their bank balance.  I have seen business owners go without paying themselves because cash was short and they had to make payroll for everyone else.
  • Not sending invoices promptly.  People are much quicker to respond to invoices when they have just received the benefit of your services.  This is an easy task to outsource to a Virtual Assistant if this type of paperwork bogs you down.
  • Finding ways to shorten the cash flow cycle.  This includes keeping a sharp eye on inventory levels and not overbuying because it looks like you can save a few cents by buying a larger quantity – tying up more cash for a longer period of time.
  • Leaving the planning to the accountants.  Particularly in times of tight credit, lenders will be more willing to work with small business owners who are savvy when it comes to their business finances.  Lenders know that business owners who have implemented good cash flow management, more than any security interest or other protective measure, have the best ingredient for a successful lending relationship that minimizes their risk.

I wish you all the very best in 2013!  Let me know how I can help you make this year your very best year yet in the comment section below.

Until next time, remember – Mind Your Business!

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October 16, 2012

7 Keys to Success for Business Owners – Part 7 – Presenting

How do you know what to focus on day-to-day?   Presenting may help.

Sometimes business owners come to me when things aren’t clear to them about what they should be doing next.  I ask them to present their company by answering questions about each of the six points already covered in this series.

Often the light bulb quickly goes on when they realize which of the areas they are not doing much or anything at all in.  “Maybe that’s the answer,” some have blurted out.  I may have known it was the answer, but it’s always best to have someone discover it themselves. Presenting brings it all together because you have to truly understand something to present it.

What do you think? How do you present your organization to your employees, the bank, vendors, investors, or the general public? You’re probably better than you think, because if you weren’t doing some version of these 7 Keys to Success well, you would have been out of business a long time ago.  Perhaps you could use some fine tuning in a few areas or maybe a complete makeover.  I’ve been through just about any scenario you could imagine with my clients.

Your homework assignment is to revisit your Vision, Profit Plan, Marketing Plan, Organizational Plan, Leadership and Cash Flow Forecast.  If you have someone to present these to, do so.  Give them permission to ask you questions about what is not clear.  In the presenting it may become very clear what you should be doing next.

If you’d like to present your business to me, email me to schedule a conversation at coach@thebizedge.biz.

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I look forward to hearing from you.  You can join in the discussion and post your thoughts below.

Until next time – Remember to mind your business!

September 11, 2012

7 Keys to Success for Business Owners – Part 6 – Cash Flow Forecast

How come my CPA tells me I’m profitable, but there’s no money in the bank? How do I know if we can dig our way out of this hole? How can I handle all this credit card debt? There’s those darn numbers again! I thought we covered this already 🙂

Some clients that meet with me think they are about to call it quits because there is not enough money in their business.  The key is to help clients understand where the money goes, analyze Return on Investment for their dollars, find ways to reduce expenses, and hold their hand every step of the way.  The first step to get out of a hole is to stop digging.  It’s simple – not but easy!

I also have clients that want to grow!  What they are looking for is the money to expand.  It can be expensive to borrow the money.  What if they can find the money they need in their own business?

The focus is to develop a short-term cash forecast for the next 90 days.  Don’t think this is only for businesses that are in pain.  Developing a Cash Flow Forecast is good for all businesses.  It will sound a lot like developing a household budget so it will not feel like a foreign language to you.

Start with what you know.  What are the expenses you know will come due during the next 90 days?  Rent?  Utilities?  Payroll?  An annual insurance renewal?  If you don’t know the exact amounts, look at your historical expenses and make an educated guess.  You don’ t need an elaborate software package, a spreadsheet will do to develop the list of items and your estimates and the actuals as the bills come in.

Be diligent.  Enter all your expenses, yes, all of them.  Find out where all the money goes.  Typically there are expenses that have been added over time that may no longer be providing a Return On Investment that they originally did.

Once you’re tracking the expenses, get critical.  Look at everything.

Look at your utilities.  The bigger the bill, the greater the potential reward for making small changes in your usage.  Do you have the option of working with a reseller for your electric or gas?  Check into programs that are offered in your area.  Does your utility offer free energy audits?  Have you had one?

Take a critical look at the expenses for maintenance of your equipment.  Can new equipment end up being less expensive and more productive?  Look at anything you lease and recognize when the lease is up.  If there are more productive options available for less, it may be worth paying a small exit fee to upgrade early. There may be other expenses that you have not had re-quoted for quite some time where you can find cost savings.

It does take some time.  I promise the updated knowledge about your current expenses and the review of expenses that you have taken for granted is well worth the time you spend.  Some of my clients have found more than enough money to pay off their debts over time, or ways to update their equipment and get more productive, and some found the money they needed for growth without increasing their debt load.

What did you find?  Share your findings with the rest of us!  Questions?  Ask away….

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I look forward to hearing from you.  Join the discussion and post your thoughts below.

Until next time – Remember to mind your business!

July 17, 2012

7 Keys to Success for Business Owners – Part 2 – From Vision to Action

From Vision to Action –  In the last issue I introduced you to the 7 Keys to Success that successful business owners focus on as they grow their businesses.  The 7 keys are:

Vision, Profit Plan, Marketing Plan, Organization Plan, Leadership, Cash Flow Forecast, and Presenting

The exercises in the last issue included drawing the diagrams to formulate the overall vision for your business so that you could describe it to someone.  More specifically, refining your vision to the point of defining details of your business 3 years from now including:

What are your offerings?
What does the organization look like?
What is your role in the organization?
What rewards are you enjoying?
Who are you working with?

My business coaching clients enjoy doing the exercises.  It’s fun to look into a crystal ball and dream BIG.  How did it feel for you to envision the growth of your business?

Now it’s time to define what it would take to get your business from where it is today to where you envision it could be.  Regardless of what your vision is, or what your business is, I guarantee that it takes ACTION, often different action from what you are doing today.  Albert Einstein said it well…..

Insanity: doing the same thing over and over again and expecting different results. Albert Einstein

I know you are busy.  I know you are working “IN” your business every day.  But it’s time to start working “ON” your business.  If you keep doing the same things over and over again, you can’t expect different results.

Look at each of the areas in your business vision that are different from where your business is today.  What ACTION do you need to take to move forward toward your vision?  Start a brainstorming list.  You’ll think of more things as you spend more time on this.  Often you can define big steps you need to take, but they can be daunting.  List the big steps, but then begin to list all the small steps that it will take to reach the big step.  Let me give you an example –

Let’s say your vision includes moving to a different location.  What are the big steps involved?  At a minimum you’d need to find the location and build it out to suit your needs.  Huge steps.  Start with the first one, find a location.  What steps do you need to take to get to that point?  Define your space needs?  Look at existing spaces or building sites?  Determine the cost?  Explore ways to pay for it?  Once you start breaking the big step down into smaller steps you can start to define the ACTION that you need to take to get from where you are to where you’d like to be.  One small step at a time.  If a step feels too big, break it down again into smaller ones.

What are the ACTIONS that you need to take in your business?  If you don’t start doing something differently, where will your business be 3 years from now?  In contrast, if you DO start taking ACTION, where could your business be even one year from now?

I look forward to hearing from you in the comments below.

Until next time – Remember to mind your business!

Holly Hanson
Licensed Professional Business Coach
The Business Edge
The Headlights and Guardrails for Your Business

June 26, 2012

7 Keys to Success for Business Owners – Part 1

7 Keys to Success –  Many small businesses are stuck in a state of how.  If you are working hard at the right things, your odds of getting unstuck increase dramatically.  But how do you know what to focus on?  There are seven things that all successful business owners focus on to run their companies

I will introduce you to the 7 Keys to Success and highlight one of the topics in each of the next few blogs.  The 7 Keys to Success are:

Vision
Profit Plan
Marketing Plan
Organization Plan
Leadership
Cash Flow Forecast
Presenting

Vision:  He had been in business a few years when he asked me, “How do I open my second location?  I see 12-15 locations when I’m done, but I don’t know how to open that second one.”  I knew he had the hard part down already.  He knew where he wanted to go!

Where will you and your company be in 3, 5, 10 years?  Can you see it and paint a picture for me in a couple of minutes?  Or are you at a total loss for where you and your business are going, but you work hard week after week and each feels like a repeat of the week before?

Why does it seem so easy for other owners?  What are they doing that you are not?  How do they do it all?  They don’t work any harder than you do.  The answer to these questions starts with knowing where you want to go, your Vision.

Take out a notepad and begin to write your thoughts and draw the diagrams to formulate what your overall vision is for the business.  Get a fairly clear picture so that you could describe it to someone.

Leap forward 3 years from today’s date.  Grab a journal and write that date on the top of a clean page.  Describe where your business is on this future date – 3 years from today – using the present tense, not future tense.  Answer these questions:

What are your offerings?
What does the organization look like?
What is your role in the organization?
What rewards are you enjoying?
Who are you working with?

Keep your journal handy as we work our way through business topics that will be presented in this blog.  I look forward to hearing from you in the comments below.

Until next time – Remember to mind your business!                       Holly Hanosn, Licensed Professional Business Coach

June 5, 2012

Technology Tools Help You Run Your Small Business – Part 2 – Accounting Software

Technology Tools – Accounting Software

If you don’t have a good handle on your finances, beginning with the money you spend (expenses), the money you receive in the course of doing business (revenues), how much your business is able to keep (profit) or how much you are in the hole (loss), how do you know how you are doing?  I’m amazed when potential clients tell me – “There is still money in the checking account” as a response to my questions about their business financial situation and they are serious, not just kidding!  If you are still keeping a box or a file of receipts hoping that at tax time you will find a great accountant who will work with you to translate the collection into a tax return, chances are you are not watching your cash flow as closely as you should be.  It’s time to get serious about your business.  It’s OK if you like keeping track in your own spreadsheet if it gives you the information you need as a business owner.  For most small businesses QuickBooks is the most widely used although there are many other low cost (and even free) online accounting applications that let you track your finances from anywhere.  Many banks and business credit card services let you download your recent transactions directly into your accounting program.  Some will even categorize your expenses into spending categories to help you with the record keeping.

You and that great accountant that you work with will appreciate your step up into an accounting system.  You will be able to keep your finger on the pulse of your business and start to do some analysis and answer questions like: What is your typical sale?  When do your customers buy?  What products or services are the most popular?  What is your business income? What is your profit margin?  Can you afford XYZ?

What would be helpful for you to know about your business financial systems?  Share your thoughts in the comments area below.

Stay tuned for Part 3 – Time Management – in the next issue of this blog.

Read prior blog topics and visit my website at www.thebizedge.biz to find solutions to your business issues.  Enjoy your business!

August 16, 2011

The #1 Top Myth of Business Coaching

The #1 Top Myth of Business Coaching…It’s Expensive

Have you ever considered talking to a Business Coach but thought it was too expensive?   It’s the #1 Myth that I hope to dispel.

As a Business Coach I initially meet with potential new clients to determine what their needs are and if I am the right solution for them.  In the initial meeting we work together to clarify their issue and the steps needed to move forward.  Often they are able to clearly see what they need to do at this very first meeting!  They get a “test drive” to see how we might work together in a longer coaching relationship.

If we go forward with more coaching, the goal is to find money in their business through cost savings or generate more money by streamlining procedures or gaining more cash flow through more sales to more than cover the cost of the coaching.

Let’s look at just one example, your cost of marketing.  If you don’t market, you don’t get customers.  But what if the marketing you did was directly targeted to the audience you need to reach?  Those that become your customers.  The payback is much greater when you do the right marketing to the right people.  If a Business Coach helps you to get a better return on your marketing dollar, the cost of the coach is easily covered by the increased results of your focused marketing efforts.

That’s just in the marketing area.  Most Business Coaches work with you on many aspects of your business and help you prioritize where to spend your money most effectively and where to spend your time with the greatest return.  Not expensive, but easily justified by the results you’ll experience.

Possibly one of the best investments you’ll ever make!

Have you thought about working with a business coach?  What is holding you back?  Share your comments here.

April 19, 2011

Cash Flow – Collecting Your Due

Interesting question from Ron (Helpful Herb) in response to a recent post. ……”Any suggestions on how to improve cash flow?  Receivables are nice but I can’t spend them until they are paid.”

A number of my clients have asked the same question recently.   

Cash flow is tight for some and collecting quickly is key to survival.  After reviewing their procedures, I have found that some clients have major delays in their billing.  I can tell you that the later people receive an invoice after the service is provided, the longer they delay the payment.  I don’t know why, it seems to be a human nature thing.  

Consider creating an invoice on the spot.  Think of all the times you have paid for a service immediately – you expected to didn’t you?  You simply learned what was due and paid it – right then and there.  Examples that have occurred in my life recently are a haircut, a dentist appointment and house cleaning.  If you think you can’t create an invoice on the spot, comment below and tell me why you can’t.  I may have some ideas for you.   

If you still think you can’t create an invoice on the spot – which encourages getting paid immediately – set aside time each week to invoice for the week’s work.  One of my clients decided to create invoices at the end of each day.  That’s a great concept, but may not work for all of us.  

When you create your invoice, what terms do you provide?  I encourage clients to review their terms.  If you are giving your customers 30 days to pay, then don’t be surprised if they mail the check on the 30th day or later.  Consider changing your terms to “due on receipt”.  It will encourage some of your customers to write the check when they open the envelope or open the email containing the invoice. 

How long should you wait to re-send an invoice that has not yet been paid?  No longer than monthly.  Don’t be shy about highlighting the fact that the payment is past due.  The people who invoice you are not shy.  Pay close attention to the bills you receive and copy best practices. 

Make the changes you need to.  It will improve your cash flow situation.  Comment below on the changes you are committing to make in your business and your success stories.

March 23, 2011

Beware – Cash is King, but not Everything!

  Cash is King, but not Everything!

As small business owners many of my clients measure the health of their business by their bank balance.    If there is money in the bank, life is good.  Your corporate tax returns are filed by now, or you have requested an extension. Personal tax returns are due soon unless you request an extension.  You have looked at more paper than you care to in preparation for your tax returns.  

So, what can you learn from all that paperwork beyond knowing how much you owe or paid  in taxes?  Can you chart your actual expenses to see a cycle of cash flow for your business?  Are there annual expenses that you should be accumulating cash for all year long so they aren’t such a shock when the bill arrives?  Can you plan for expenses and contingencies so that 2011 is a smoother year financially than last year was? 

Before the year gets too far along and you put all those tax preparation papers in deep storage, take a few minutes and create a 2011 outgoing cash flow analysis for expenses – sounds hairy, but don’t let it stress you out – using a simple spreadsheet.  Set up a 13 column format with the first column being a description column.  Label the next 12 columns one per month, January, February, March…you get the picture. 

What expenses did you have each month in 2010 that will occur again in 2011?  Put a description in the first column so you’ll be able to identify what the expense is.  Put your best estimate for the 2011 amounts in the same month(s) column in your spreadsheet.  Rent, Internet and Phone expenses will probably appear in each of the 12 month columns.  Insurance expenses and membership dues may occur in one month’s column, or twice a year.  Repeat for each expense that you can identify from your 2010 paperwork.

When you have everything entered in the 2011 spreadsheet that you can identify, create a total at the bottom of each month column adding up all the expenses for that month.   Next create a total of all the totals for each month, giving you a Grand Total. 

You have just defined as closely as you can your Break Even Point for 2011!  

The number is probably a big one.  What does it mean?  It means that based on the information you entered into the spreadsheet, it will take that Grand Total amount to cover all the expenses you identified for 2011.  You won’t start to build value in your business or make a profit until you bring in at least the amount of these expenses into your business.  The big balance in the check book can be measured against the expenses listed in the upcoming months so that you aren’t tempted to spend it and then be short when the big bills come in.  Keep the bank balance growing until it covers all the expenses you can see ahead of you.

Need help in developing a strategy to increase your business so that there is more left over for you in 2011?  Give me a call.  815-985-3652  We’ll talk.

August 17, 2010

What Businesses Ought to Know About Guarding Their Cash Stash

 

Yours may be one of the businesses that has run into cash flow issues during these tight economic times. Do not take this lightly since 82% of business failures are due to cash management problems according to a study by a US bank. Let’s look at important concepts of cash management.

First, your available cash doesn’t necessarily directly follow your sales. Income from sales does not always immediately hit your bank account. There is often a time lag to doing business; the more that you depend on sales to other businesses, the longer the time delay your business will experience between incurring the expense and being paid. When you invoice another business, you can not count on that cash until it arrives. Even if you work only with individuals, you have a percentage of clients who will be late in paying for your services.  If you bill insurance providers for payment, there is always a delay.

Secondly, if your business includes the sale of physical products, this will have a major impact on your cash flow. You will incur the expenses for development and production of that product, or acquisition of the product before you have any cash from sales. Inventory is an expensive element of doing business, but if planned carefully, can be very profitable.

Finally, it costs money to grow your business. Many entrepreneurs make the mistake of not investing any money in their business growth, but others try to grow too rapidly and lose track of the expenses that growth requires. Being able to strike a balance between growth and cash required is one of the traits of a successful entrepreneur.

Use the idea of working capital to monitor your business. Your working capital is the money in the bank that allows you to pay your bills, keep up with ongoing expenses, purchase inventory and generally stay in business in the time lag that you are waiting to be paid by your customers. Know what this amount needs to be and adapt your business practices in order to maintain it.

If you are ready to grow your business, let’s talk!  That’s one of many great times to hire a business coach!

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