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. 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.

1. 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.

1. 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.

1. 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.

1. 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.

You would not dream of starting a business without a business plan. As has long been said; if you fail to plan then you plan to fail. Another important area that is crucial to have a plan is in the area of managing your cash flow. Cash flow goes hand in hand with business success. Here is a list of some essentials to include with your cash flow plan:

• Implement a cash flow forecast. A plan of this sort can help you anticipate and plan for times when you may experience cash flow short falls. This type of plan is especially valuable to seasonal businesses such as lawn services or holiday decorating businesses.
• Check the market for your competing goods and/ or service providers. Ensure that you are charging the appropriate amount; both what the market will support and what you need to have to continue a healthy cash flow for your business. More often than not, small businesses find that they are undercharging.
• Look for ways to add value to your goods/services. Value added services can go a long way to increase customer loyalty as well as enhancing your billable rate. Make yourself the ‘go-to’ person by going above and beyond your customers’ expectations.
• Invoice your customers promptly. To delay billing translates into delaying your cash flow.
• Invest in a quality accounting package. A good product ensures that the business owner can invoice customers efficiently, as well as maintaining good records. The business owner needs to drive their business from a financially savvy perspective… a good accounting package can make that process seamless by providing the tools to bill, collect, keep records, and generate reports.
• Make invoicing fool proof. Ensure that you have provided all of the information for your customer to clearly understand their invoice: purchase order, job name, goods and/or services provided, etc. A follow up call to ensure that the invoice was received is also a good idea – one that frequently improves the turnaround time for payment.
• Ensure that your terms and conditions are clear. Define your payment terms right on your invoice. Do not be vague in when you expect payment. Often if you clearly give a date when the payment is expected, you will find that your cash flow improves.

Cash flow is the life blood of any business, small, medium, or large. I believe the business owner can go a long way to manage their cash flow by simply being proactive. Assemble a good team, work with a plan, and drive your business to success.

It is imperative for a business owner to understand their statement of cash flow. If you have a good accounting package in place then you can easily run a report at any time. A statement of cash flow can offer a picture of the business’ budget and is a great tool to aid the business owner in driving their business from a financially savvy position. If the business owner understands the ebb and flow of their money then they are better able to make intelligent business decisions.

The statement of cash flow is set up in a two column format – debits and credits. The columns present the business owner with an easy to understand way to review their income and expenses. Once the business owner can review their assets, expenses, income, etc. a clear picture of where the money is going will emerge. With this type of information in hand it is easy to make improvements in the businesses cash flow.

There are a handful of reports that all business owners should acquaint themselves with. Statement of cash flow is a valuable report that allows the business owner to drive their business to success and focus on where their passion is… running their business!

We have been discussing ways to help small to medium businesses with cash flow issues. Receivables factoring is a terrific alternative for small to medium businesses, but there is something that all businesses should address… something very simple and close to home. The pace at which receivables are coming in makes a big difference in avoiding cash flow problems.

If a business has slow payment issues with their customers then the problems are inevitable. It is not if, but rather when, the cash flow crunch will occur. In simple terms, if a business has outstanding invoices and customers takes 60 to 90 days to pay those invoices, then it is obvious where the problems will occur. At the very heart of the issue is the fact that the business carrying outstanding invoices in excess of 30 days is extending credit to their customers. I know of very few small to medium businesses that are in the position to act as financier to their customer base.

One of the best ways to ease this type of situation is to implement a gentle reminder system. By staying on top of receivables a business owner can help drive their business to success and alleviate some of their cash flow problems. I am not suggesting that the business owner manage the receivable themselves, but rather that they have a person in charge of helping drive those ‘touches’. It can be as simple as taking one day a couple of times a month (mid-month and month end are good times for this) to make a simple phone call. A great first call is to mention that you are following up with the customer to ensure that they received the invoice.  If the invoice still does not receive attention a second call asking if there is a problem with the invoice can be an appropriate follow-up.

I find that many times just starting a dialogue can help speed up the collection process. We partner with many of our factoring clients to offer these follow ups, as an extension of our factoring relationship. If you or someone that you know would benefit from our services, please give us a call.

There is a debate looming over the value of the creation of a business plan. I am a strong advocate of the age old: “If you fail to plan, then you can plan to fail.” When you put pen to paper (so to speak) you are thinking through the aspects of starting your business. Since it is a live document the business plan can often help you ensure that your concept is viable. Often times the business plan helps to shape the business into a different and frequently stronger concept. Following are some elements that every business plan should contain:

• An introduction – a statement of the product of service that the business is there to provide. The who, what, and why of the business’ purpose.
• The mission statement of the business.
• The specifics of the business structure including the organization and development.
• A report indicating that studies have been completed to determine if the marketplace will support the business, as well as forecasts of cash flows (including cost of operation and expected income).
• Information on where the original startup funds will come from: business owner’s funds, family, private investors, etc.
• Goals and objectives of the business owner.

The business plan is a dynamic instrument and should be constantly growing and evolving with the business. The plan should provide a road map of where the business owner intends on driving the business. By planning the business owner is ensuring that they are better able to stay the course as it is clearly laid out in a document that they can refer back to.