I recently read an article by Rosalind Gray in which she cited a short check list of things that don’t take a lot of time but can return a big value for your small business. I thought I would share Ms. Gray’s checklist, as I found the ideas a good reminder of how to check myself.
- Identify one time-consuming task you could outsource or delegate. Use the free hours to work on your business.
- Ask a stranger to look at your website, shop, product or services and tell you honestly what he or she thinks.
- Do one thing to increase your visibility in social media communities related to your business: tweet, blog or comment on industry discussion forums.
- Ask a friend or business associate to act as a sounding board. A mentor can offer perspective and motivation that you can’t always achieve on your own.
I have been working on each of these items and have noticed a difference in my business. I would challenge you to pick at least one, that you are not already doing, and get started on the road to business growth.
I read a lot about the shape of the economy from the viewpoint of small business owners. The biggest hurdle that the entrepreneur faces is “Cash Flow”. That is the most pressing problem faced by small business. We all know that cash is king and cash is the life blood of any business. The economic recovery appears to be gaining steam, but what does that mean for the business owner?
Most business owners, when faced with cash flow shortfalls, respond by cutting back the number of employees, reducing the benefits to their employees, or even decreasing their offerings in terms of goods and/or services. The latter is not due to choice, but rather a simple failure in keeping up with the demand. Put simply, if a business owner does not have the cash to procure raw materials, or pay employees, something has to give.
There are a number of reasons for the cash flow crunch that is hovering over the head of many a small business owner, but the two that I am hearing the most about are the reductions in funding options and receivables aging. Currently many small business owners find that their lines of credit and/or their current loans have either been reduced or called in early by the lender. There is also a trend in business for companies to push the payment of invoices out to 60 – 90 days… some even further.
Invoice factoring is an option to the standard banking relationship, particularly helpful for those small businesses that have either not been in business long enough to establish a banking relationship, or are in the growth phase of business. A receivables factoring company provides a small business the option of building their credit-worthiness. We at American Funding offer the necessary financial tools to assist the small business owner to grow their business to success.
Whether a business owner is in the start-up or growth phase, they are working with building a business. The business owner has an idea of what the business is and what they want it to become, but sometimes the path from point A to point B may seem conceptually fuzzy. Looking over the shoulder of your competition can provide clues for the way forward.
I recommend starting with a business plan… as the saying goes, “If you fail to plan, then you plan to fail.” A business plan can give the business owner a great place to start, and a road map for the way forward, but a business plan should not be a static device. As the business owner begins the move forward from concept to implementation, the business plan needs to be revised. Keep it fresh, with an eye toward learning what does work (incorporate more of that) and what doesn’t (get rid of that). Looking at what your competition is doing can help you asses what you should/should not be doing. It can help bring the concept of getting from point A to point B into focus.
Competition brings out the best in most things; people, product creation, business, just to name a few. By reviewing what is working for your competition and what is not, you will be able to hone your business plan to a more effective road map.
- What are the goods/services that those in your niche market are offering? Study up on their offerings and price points.
- Do you see a certain area that they have expanded offerings? Where do they seem to have pulled back? Learn from your competitors’ experience.
- Stay up on their social media and advertising. You can draw inspiration from what your competition is using. A healthy game of marketing leap frog can keep things fresh, as well as keeping your potential customers engaged and interested.
These are just a few suggestions of ways to utilize your competition to improve your business. If your competition is smart, they will be doing the same. If a particular niche market is working diligently to stay ahead of their competition then, the overall market will see strides brought about by good old fashioned competition. Better goods/services, more responsive providers, and fresh marketing touches will keep the customers coming back for more.
Factoring receivables is such a simple concept to grasp, and an incredibly easy tool for businesses to utilize. Whether in the startup or growth phase of your business, cash flow is a major concern. Once a business owner needing cash flow assistance understands the point behind this alternative financial tool, they will wonder why it took so long to add it to their small business arsenal.
I’m always looking for a simple way to explain factoring receivables. Factoring receivables allows the business owner to alleviate cash flow concerns. The way they do this is by partnering with a factoring firm that advances up to 80% of the value of their outstanding invoices. This is not a loan and therefore allows the business to avoid incurring additional debt. Another consideration is that, unlike a traditional bank loan, the client can have access to funds usually within 24 hours.
Often times a business owner will feel that being turned down for a bank loan closes the door to cash flow assistance. The factoring firm evaluates the creditworthiness of the client’s customers. This allows a business that has not established their own creditworthiness to build ‘bankability’, while being about the business of running their business. In this way a receivables factoring provider is offering a lifeline to the startup or growing small business.
If you or someone you know could benefit from working capital to ease a cash flow crunch, consider receivables factoring… a great alternate financial tool for the small to medium business owner.
It is imperative that a business owner understand cash flow and how it drives the business. There are three basic considerations for understanding the rhythm of the cash flow of a business.
- Cash In – It is imperative to track the money into the business. This is best done with an accounting software package which can track your receivables.
- Cash Out – The flip side of cash in. This is an accounting of the money flowing out for such things as rent, cost of goods sold, compensation for employees, etc.
- Forecasting – This is especially important for seasonal businesses such as lawn services, contractors, etc. To recognize the trends in cash flow will help the business owner plan for lean times and adjust cash flow to compensate for those.
Whether starting or growing a business, in a seasonal or year round niche, there is a definite rhythm to cash flow. The rhythm of cash flow can make or break the business. To be successful, the business owner must recognize and work within the constraints of the cash flow rhythm of their particular business.
I have followed the debate about business owners paying themselves a salary on several message boards and think it is a very interesting question. Many business owners feel that taking owner draws or shareholder distributions, when they need to withdraw money from the business account, is adequate compensation. Most entrepreneurs work side by side with their employees and frequently put in a lot more time, energy, and effort… after all, the business is their baby, their passion. Most business owners are willing to forego a salary looking toward the time when cash flow is better and the business is on firm financial footing.
Business owners often wearing multiple hats: Owner, Chief Financial Officer, Chief Executive Officer, Manager, Salesman, Bookkeeper, etc. An entrepreneur, as lead person for driving a business to success, must ensure that they are being compensated for your efforts.
The problem with taking draws is that, done inconsistently and without a plan, the business owner can lose control and end up putting the business in a financial bind. Conversely, the business owner needs to ensure that they are being compensated on a regular enough basis to not endanger their solvency or mental well-being. If the business owner feels they are being drained by their business and there is no light at the end of the tunnel, burn out is a danger to attitude.
To determine the compensation value of the services a business owner provides for their company they should research the compensation of business owners from the same niche market in their area. Some business owners find that applying a formula of a percentage of their monthly business profit margin is a good indicator of the compensation they should be paying themselves. Whatever form of calculation provides a usable model, the most important things is to be consistent. Also, remember to work in a raise if business is good. After all, a business owner would recognize and reward the effort an employee made that contributed to business growth. Entrepreneurs are no less deserving of a similar recognition for a job well done.
Once the amount of compensation has been determined then care should be taken to keep the monies separate. Two accounts should be maintained for clarity and ease of accounting; a business account and a personal account.
Finally business owners should discuss the salary verses owner’s draw difference with his/her accountant. There are tax implications and benefits to both ways of paying yourself depending on how your business is set-up (sole proprietor, LLC, etc.)
Please feel free to weigh in with your thoughts and opinions.
Small business owners are increasingly seeing the value of engaging their customers through social media. Whether it is LinkedIn, Facebook, Twitter, Pinterest, or whatever social media tool makes the most sense for a particular small business, we are seeing an increase of use of these great tools. One thing that people need to understand is that no matter what outlet you choose, consistency is the key to driving the success of your social media campaign.
I have spoken on the importance of value driven content:
- Do your posts add value to your offerings?
- Do your posts make sense for your type of business?
- Are you careful to post informative and relevant information?
- Have you, through your posts, established yourself as the expert/go to person for your niche market?
You need to carefully evaluate each point and let them guide you in your social media marketing strategy. Do not post anything and everything, exercise quality control. Your post should educate, inform, and/or entertain (and it does not hurt to have a mixture of all three). But, don’t miss another critical criterion of social media etiquette. It is just as important to post consistently as it is to provide posts of value.
You will find that you consistently drive more traffic to your site if you are a fixture… if people can rely on a regular post, then it will likely become something they look for on a routine basis.
Avoid making the process complicated. If you don’t enjoy posting (if it is a chore) then that will come through to your readers and it will likely be a chore for them to engage with you. Part of connecting is to show who you are in your posts. Let your personality show through – your passions, your frustrations, and your personality. For most small business owners their small business is there passion, their baby, and the thing that can be grown and nurtured through a good relationship with social media marketing.
As an owner of a factoring business, I like to provide as much information as possible on how factoring receivables works. One question that occasionally comes up, both from potential clients and people interested in my business “What will customers think?” Put more simply, “How will factoring receivables affect my relationship with my customers?”
Some people have the mistaken idea that only businesses in financial crisis work with factoring companies. Nothing could be further from the truth. In contrast, most small businesses utilize factoring because they are growing too fast! I commonly refer to this scenario has small businesses experiencing “Growing Pains” that result in the need for factoring. More and more, as people are getting more educated on factoring receivables, they are finding factoring as an excellent alternative to help relieve the pains of growing a small business. In fact, most large companies are very accustomed to working with a factoring company on behalf of their vendors.
Most of the businesses that we work with are startups, companies experiencing growth, or seasonal service providers. As we all know ‘cash is king’. All businesses, whatever their phase, are driven to success by liquidity. Very few businesses can wait 30 to 60 days for payment of their invoices.
Factoring, along with the added cash flow it provides, can actually improve a business’s relationship with their customers. As a by-product, factoring allows business owner to focus on their core business, increasing sales, and providing excellent customer service because they aren’t chasing down payments or constrained by tightened cash flow. Improved liquidity provides for a better level of service and that is a win-win for everyone involved.
Business owners, whether in the start-up or growth phase, frequently find that cash flow is a challenge. It is difficult to acquire a small business loan in the current economic climate. Yes, we are seeing some indications of recovery, but the lending environment has not seen a big turnaround in terms of ease of getting working capital for new or growing businesses. There are many reasons for this, but at the top of the list is the businesses lack of a ‘bankable history’ that lenders need to assess their credit worthiness. How is a fledgling business to improve their bank-ability?
Much like the conundrum of the person new on the job market that can’t get a job because they have no work experience, how can a business in the start-up or building phase show they are a good credit risk? Cash flow is the life blood of a business, no matter what the size or phase of business. A new or growing small business must find a way to get working capital in order to keep the doors open, make payroll, purchase goods and supplies from vendors, and a multitude of other things vital to helping the business get a firm footing.
Here are a few suggestions that can help with the loan process:
- Ensure you have a strong business plan in place – this will demonstrate to a lender that you have a well thought out plan to succeed in business.
- Exhibit a strong marketing plan – a lender likes to see you have a plan of attack to carry the business forward and get the exposure you need to reach your customer base.
- Do not walk in to your lender’s office with excessive debt to start with. This is often a flag to a potential lender that you are using your current available capital poorly.
- DO YOUR HOMEWORK!! Research your business niche thoroughly. Make yourself an expert on the goods and/or services you offer. Knowledge is power and a potential lender will ask questions. Make certain you don’t have to say, “I don’t know.”
A great way to obtain working capital, to allow you time to build your bank-ability is to work with a receivables factoring firm. The process of factoring receivables allows a business to get working capital without debt. A business owner working with a factoring firm is using the power of their receivables as the asset it is. As a business grows, so does the revenue stream. With a strong revenue stream and time ‘on the job’ the business’ financing options will expand. But, until that happens start-up and growing businesses need to know that there are options to finding working capital to help with their cash flow issues. We stand ready to assist business owners with a cash flow pinch by helping them tap into the asset of their receivables. Let us know if we can help you build your bank-ability.
Whether you are just starting your business or working on building your business, cash flow is probably a constant on your mind. Have you heard the phrase “lumpy cash flow”? Chances are you have experienced it. This term refers to cash flow into your business that comes in spurts. Often times this is experienced when the business sends out their invoices. There are some customers that are good about paying and the business may experience a sudden in flow of receipts. Then the famine sets in… Here are some tips to improve your cash flow and help you weather lumpy cash flow.
- 1. Put a great accounting package in place. If the business owner is managing accounts, that is payables and receivables, then they are more aware of the financial health of the business. This awareness can mean better business decisions based on a financially savvy understanding of cash flow.
- 2. Get to know your customers. With the online research at your fingertips you can check resources like the Better Business Bureau, Google, LinkedIn, Twitter, etc. to see what is being said about those you are considering doing business with. In effect, you are extending a form of credit to those that buy goods/services from you… make certain they are credit worthy.
- 3. Get cash up front. With the current economic climate there are more and more businesses requesting retainers or deposits on account. I have even heard of some professional service providers working from a draw down standpoint. They have a new client/customer pay $XXX and then utilize those funds to pay for services until they have reached such a point that it is necessary to ‘refill’ the account.
- 4. Accept credit cards. This is a big help as far as cash flow. It simplifies the process for both parties. There is the notion that the credit card fees result in a loss of revenue, but that is a small price to pay when you consider that the current trend is for customers to take 60 – 90 days to pay invoices.
- 5. Use receivables factoring. The small business owner that recognizes the value of the asset of their receivables can put that asset to work for them. Factoring receivables can get cash flowing into the business, without incurring additional debt. As with the credit card fees, some business owners consider factoring fees to be something they would rather avoid. Quite simply, keeping cash flowing is the need for all businesses to keep the doors open and business growing.