A business can be profitable and still go under due to poor cash flows. What a profound statement. Even though your business is showing a profit it can be difficult to pay suppliers and make payroll on time. This difficulty is typically caused by a delay or fluctuation in revenues. Cash flow shortages are usually caused by slower paying customers, seasonal sales, or your company suddenly experiences growth.

When customers do not pay with cash on delivery (COD) a gap is created between the receiving of the revenues and the payment of expenses. Payroll, rent, utilities, suppliers etc. all need to be paid on time. Lets say in one month you sell $100K worth of product with a profit of $20K. The $80K in expenses needs to be paid right away but your customer does not pay for 30 days. This creates a gap in cash flows. You need to pay out $80K before you see the $100K in revenue. You are profitable but do not have the cash on hand to pay your bills. This is why profitable companies can still go under. When your company experiences growth this gap in cash becomes far more difficult to manage because your costs are increasing faster then the revenues coming in.

Good management and planning for this shortage in cash flow is vital to your company’s success. At a minimum, a one-year cash flow analysis needs to be completed and reviewed on a monthly basis. The gaps in cash flow must be identified with a plan to overcome these gaps. The ideal situation would be for a company to keep a cash reserve to draw against when a cash flow gap is created. Unfortunately this is not a viable option for many companies. Some businesses have the luxury of a generous line of credit with a bank to overcome these cash shortages. In today’s tough lending environment these generous line of credits are difficult to come by. Although this situation sounds grim there is another viable alternative called Accounts Receivable Funding.

Accounts Receivable Funding or Factoring is a type of financing that is tied directly to your accounts receivables. Qualifying for factoring is much easier than traditional bank financing. A bank will focus on your company’s financial history and cash flow while a factor will focus on the creditworthiness of your customers. This is because a factor ties financing directly to your accounts receivable or invoices. These invoices are a “promise to pay” from your customer. If you customer has good credit then a factor is happy to lend you money against it.

Factoring invoices is an excellent financial tool to help maintain proper cash flow in your organization. When you sell your product or service a factor will generally advance you in cash up to 90% of the value of the invoice. Now you have closed the cash flow gap and are able to meet payroll, pay expenses and pay suppliers on time. When your customer finally pays the invoice the remaining amount of the invoice will be forwarded to you minus a fee. As your organization grows, so does your funding.

There is a cost for this type of financing so you need to carefully weigh the reduction in profit to the benefit of being able to make your payments on time. You need to also include the benefit of the redirection of your time. Instead of trying to juggle customer payments with paying bills you can concentrate on running and growing your business.

If you investigate this type of financing, don’t forget to shop around. Fees for factoring can range significantly. To see how factoring can help your organization we provide a cash flow calculator on our website. Simply model your company’s current cash flow situation, add the cost of factoring to your cost of goods, lower your collection days and watch how your cash flow improves.

Mark D. Lomas, MBA
Spotlight Financial LLC
https://spotlightfinancial.biz/Factor_Invoice.php

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No matter what stage you are in with your business, it is always good to ask a pro for ideas. All newspapers and magazines have at least someone speaking for entrepreneurs. These and any business owner willing to talk to you are great sources of information. Some of them are just waiting for a chance to help you get the best information. Even sites like this are sometimes a great source of information if you just ask. In college I took a business course and through looking for investors I have learned that it is still mostly the same. Even though a lot of Investors are searching for multi-million dollar deals they can still be a fountain of information about the process. Their company websites may provide invaluable business templates for your plan/proposal.

Most important of all, start by asking at your bank or credit company. They can provide you with all kinds of business leads and advice.

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Ever wonder if those Dilbert cartoons floating around the office are a comment on your own management abilities?

The shortest path to “Dilbertdom” is to ignore the knowledge your employees have. If you think you know how to do their job better than they do, you’re sorely mistaken. Come into a new position and start making changes so things run the way you’ve been accustomed to see them run – unless everyone agrees the changes improve things – and you’ll quickly lose the trust and respect of your staff.

Think this doesn’t happen? Think again. When was the last time you saw a new VP of Marketing who didn’t change the ad agency, PR agency, and talk endlessly about changing your logo system? How many CEOs bring in a cadre of co-workers who know how he/she wants things done?

Let’s look at an analogy: traditionally stopping a domestic auto assembly line would be difficult and risky for the individual who makes the decision. In Japanese companies, any assembly line worker can stop the line if he sees problems – without worrying about losing his job. Who knows more about the quality of the product and assembly problems than the people making the cars? Shouldn’t the managers be listening to them instead of punishing them?

So here’s my suggestion for new managers and for consultants: ask the workers what they do and why they do those things. Take notes. Study what they’re doing. And then you can make suggestions if you see problems. Too many managers just change things, and too often, the changes don’t make any sense. Then, the workers question your ability, and if they don’t think you’re listening, they know you don’t care about them, and then – well you know what happens then. Change doesn’t have to happen overnight, unless there’s an obvious, and serious, problem.

And remember, change should make your processes better and help your employees do their jobs better. If it’s something that makes just your job easier, you’ll get backlash. One time I saw a new owner capriciously change the way the workers kept records of new sales. I say capricious because the old system worked perfectly and all the employees knew how to use it and liked it. But the new owner didn’t know how to use it, so he made everyone change to another system he understood better. Think about it: he used the system occasionally, but the workers used it every day. Who really needed the easier system?

It’s better to wait until you have enough information before you make changes. This also lets you involve your workers in the changes so they are part of them, rather than subject to them. It’s much harder to criticize something you’ve helped to change than something you’ve been forced to change.

Being a decisive manager doesn’t mean you have to change things quickly. It means you change them right the first time. And if your employees are part of the decision – if you have their buy-in – you’re much more likely to have good decisions that are actually implemented properly.

Finally, please make sure your changes make sense! There’s no substitute for common sense, and most of your employees have plenty of it. Anything you make them do that doesn’t make sense will make you a Dilbert-style manager.

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Agenda in business is a plan or goal that you need to have in place in order to achieve success. Your business agenda will directly affect the negotiating process with a customer. Always keeping in mind your agenda and being prepared will give you an advantage when you start negotiating.

You need to have an agenda which will help you stay in control of the conversation or the negotiation process. Make notes if it is helpful to you, or go over the best selling points and create a strategy in your head before you talk to your customer.

Also, be ready to respond to the different subjects or concerns they are likely to bring up. If you are not prepared it will put the customer in the driver seat and have an affect on the price you ultimately agree to, which will have a direct impact on your profit margin.

If they ask an unexpected question or bring up a concern you are not prepared to address, write it down and tell them you’ll call back. Be sure of yourself before you say something you may regret.

It is very important to prepare and take a serious look at your business agenda.

Business people negotiate every day. Some negotiations can take only a minute, and others can take months before an agreement is reached. Every company has an agenda and the best negotiators are familiar and understand the value of staying within the agenda when planning their strategy for negotiating.Think about your agenda before you start negotiating.

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I have created this non-profit organization to help families eliminate debt. Yes, it is going to take a life style change, but not a life long change.

It takes work to get out of debt but it doesn't have to be "life threatening" or cause family problems AND I believe that Bankruptcy is NOT always the option.

Let's look at what you can do:

1. Write down where you are spending your money.

you don't have to use quick books!
excel has a spread sheet for personal expenses
create your own
How far over your INCOME are you spending?
What can be eliminated?
Do you need a credit counselor?

2. Pay your household bills first.

the credit cards can be canceled if you can't pay your utilities or mortgage

3. Pay the minimums on your credit cards and pay them on TIME! (my mother taught me this)

you may not want to give them up.....so pay at least that much!

4. Stop eating out.

we are in a time where we have to take care of our bodied and what we eat.
stop eating out; it's better for your finances and your health

5. Give up the everyday treats.

if it's not eating out, it might be shopping
if you are in need of clothing, purchase from the sale rack
take time to give yourself a manicure/pedicure

6. Pay your tithes

if you are Christian, this is first
God rewards you when you know to give back
Stop looking at your finances in the natural; look at it in the spiritual.

Getting your finances in order is going to take longer than over night! You have to know to start somewhere.

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It can be very difficult for businesses with less than two years of operation to obtain business credit. With the vast majority of businesses failing within the first two years of operations banks are not aggressive with lending monies to new businesses. In fact in the United States 90% of small businesses cannot obtain financing from a traditional bank. All businesses, at one time or another, need to access operating capital to grow or to overcome seasonal revenue fluctuations. It is no surprise that many businesses fail due to cash flow issues. If you can’t get financing from a traditional bank where does the money come from? A lot of businesses owners will tap into personal savings, put there home ownership at risk or get family and friends to invest. This does not have to be the case.

There are ways to start or operate new businesses and access working capital without a bank loan, personal investment or the investment from family and friends. These financing methods include acquiring equipment with a lease, merchant cash advances, invoice factoring, and purchase order financing.

If a new business is unable to get the capital to purchase equipment they can lease. Equipment leasing is a viable way of securing much needed equipment, computers or vehicles. There are leasing programs available for start up companies and for individuals with marginal credit. Leasing is extremely flexible and payment plans can be tailored to protect your cash flow. If your credit rating is strong you can lease equipment with a 90day deferral payment so that you can use the equipment to finish the job before you even need to make a payment. Leasing equipment generally requires a lower credit score than borrowing money for the equipment.

One of the toughest industries to secure a small business loan is for a new business operating in retail or as a restaurant. These types of companies usually have very little in the way of assets to secure financing and are classed as higher risk. Both restaurants and retail locations accept credit cards. This provides for a method of accessing unsecured cash called a merchant cash advance. This is not a loan but rather a sale of future credit card receipts at a discounted rate.

If a new business receives a large purchase order they can use that purchase order to obtain the funding needed to purchase the supplies to fill the contract. Purchase order financing can provide 100% of the funding needed to get your product out the door. Typically this type of financing would be for import/export or distribution companies where a product is purchased and resold at a profit, however some lenders will look at covering labor and associated costs. It all depends on how credit worthy the customer is and what type of industry they are in.

If you supply your product or service to other businesses and they don't pay you for 30 to 90 days it can become almost impossible to manage your cash flows. Once you add in growth to this situation cash flow management becomes even more difficult. Due to the delayed payments, your costs increase faster than the revenues coming in. Lets look at a simple example. You own a staffing agency and you land a new large customer that will double your sales. This new customer will pay you 60 days after your temps complete the work. Your sales just doubled and so did your costs. Payroll can’t wait for 60 days, because your employees need to get paid on time or they will go elsewhere. Cost immediately double but you do not see an increase in revenue for 60 days. This is a major hit in your cash flows and you need access to working capital immediately or you won’t be able to make payroll. The solution to your problem could be in factoring the invoices. With invoice factoring you can receive cash within 24 hours of your temps completing their work. Now there are no cash flow issues. Factoring is easy to qualify for, if your customer has good credit, and set up correctly it can be a tremendous cash flow tool.

At one time or another almost all companies will need to access additional working capital to enable growth or to survive revenue fluctuations. For most small business owners this may seem like an impossible task because banks turn down the majority of their financial requests. It is extremely important for business owners to know where to turn when a bank says no. Their company’s survival depends on it.

Author: Mark Lomas, MBA
http://www.spotlightfinancial.biz

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