Steps To Get the Cash Flowing In To Your Business

As always, "Cash is King" and Ron McNutt has written a humorous yet excellent post on how to get the cash flowing IN to your business.

-Pay attention! Simply put, meet with your staff at least weekly, if not daily to review A/R, credit policies, collection issues, etc.

-Set daily goals for collecting. If your goal is to maintain a Days in A/R of 30 days, and your average monthly revenues are $100,000, then your staff should be collecting almost $5,000 each and every day. Therefore, there should be $5,000 in the bucket on Monday, $10,000 on Tuesday, $15,000 on Wednesday, etc. Don't wait until Friday to check the bucket and be disappointed there is only $10,000 versus the $25,000 you expected. Be sure to find out current Days in A/R stats for your industry and strive to stay within them.

-Manage by exception. Call the most significant offenders, maybe the top 20% who owe 80% of your A/R.

-Increase statement frequency, maybe from once a month to every 2 weeks. You probably know the positive effect of paying a mortgage every 2 weeks, what could this same principle do to your business?

-Increase the "notice factor" of your statements by printing them on brightly colored paper. This has been a long standing procedure in collection companies. Maybe even consider sending them in a large 8 1/2 by 11 envelope.

-Always get to know the person who pays the bills. Don't just call them on collection matters, but call and thank them for payments. Remember, "You collect more bees with honey."

-Add additional payment methods and incentives. Take credit cards. Offer discounts for early payment and penalties/interest for late payment.

-Establish payment terms that are favorable to you. Always strive for the longest payment terms possible with your vendors and the shortest payment terms possible with your customers.

Receivables: Hope for our Business Financing

Keeping our small business finances intact is what's important these days. But how about if you have some receivables ought to be paid to you by other businesses as well.

Isn't it too difficult to deal with collecting those receivables especially that everyone is having a roller coaster ride of the economy?

Well over at smbtrendwire.com, their guest Rob Bovarnick shared a very helpful and timely tips on how to deal with this undeniably a tough task for us business owners to do. Listen to his interview and I'm pretty sure you'll get excellent tips from Rob. Check out the podcast here -- How To Collect From Dying Elephants.

The Golden Rule to Establishing Business Credit

The first golden rule to establishing business credit lines is to ask for them. If you don’t ask, no one is going to come over and say "hey, here have some credit".

There are two main sources of business credit. That granted by a bank or other financial institution, or credit terms given by suppliers.

Using a planned approach is essential if you are to successfully build business credit. It is important to have an idea of what you need to prove about your business, if you ever want to consider a business loan, or negotiate credit terms, or extend existing credit terms with suppliers.

It is quite common when you start a business to have to pay for things before you collect monies in. This delay requires funding from somewhere, and normally, either a bank facility or some form of supplier credit will be needed to ease the strain on the owners own capital investment.

Lets look at how credit worthiness is determined All lenders are concerned with the granting of and repayment of small business loans in accordance with their terms and conditions.

They use what is commonly called the five “C’s” of credit. Cash flow, Capital, Collateral, Conditions, and Character.

Check out what are 5 "C's" here.

Myths And Realities Of Financing Start-Ups!

One of the most important things you will do as an entrepreneur is to raise the money you need to finance your new business. Unfortunately, there are a lot of myths about financing new businesses.

Below I outline a few of the myths and point out the realities:

Myth 1: You need a lot of capital to start a new business — Not true. The typical start-up only requires about $25,000 to get going. Many entrepreneurs keep the cost of financing a new business down by designing their businesses to work with little cash. They borrow instead of paying for things. They rent instead of buy. And they turn fixed costs into variable costs by, say, paying people commissions instead of salaries.

The above is just one of the more myths that Scott Shane shared regarding business financing. I recommend it really a good read as it will clarify to us a lot of important things relating to start up financing. Check it out --Myths And Realities Of Financing Start-Ups!

A Different Picture of Credit Market Today

You might as well is wondering the status of our financing, more specifically the credit market today. Well, I’ve had a chance to read a post by Anita Campbell at American Express blog saying that there is a very different picture of credit market today.

Throughout this entire credit crisis, I’ve had the bizarre feeling of being caught in a Star Trek episode. Like the episode of Star Trek where they’re exploring the Delta Triangle (the deep space equivalent of the Bermuda triangle). Captain Kirk and crew happen upon an alternate universe containing a vast graveyard of space vessels and inhabited by the descendants of people from the original vessels. The starship Enterprise is caught there until they manage to generate enough power to pull the ship out of the alternate dimension back to the normal universe.

Just like Captain Kirk and crew, I feel like there are alternate universes out there as they relate to the current global credit crisis.

You have Wall Street, which has gone through some manic trading in the past weeks. Through a series of events that the average American hardly understands, the investment banking industry more-or-less disappeared from the American landscape overnight. Central Banks and government authorities around the world are meeting and working together in unprecedented levels. And we’ve seen the government intervene into the U.S. banking system in ways not seen in the better part of a century. With each passing day we look for signs that the world credit crisis is calming, but it’s been a wild ride.

Well, we are definitely in recession these days but the best we can do is how we can strive and win over these down times of our economy. Check out more of this article in American Express Open Forum Blog.

Plan The Finances For Your Business

Wichita State University conducted a small business forum which discuss to its attendees the point in learning how to plan finances in their business.

The entrepreneurship forum, on financing a start-up business, featured Feist; Steve Radley, director of the Kansas Center for Entrepreneurship; and Vanessa Klein, a business development specialist at the Wichita Small Business Administration office.

Their task was to explain to students how to finance the working capital for a start-up business. According to them, there are three primary sources for start-up financing: the entrepreneur, the bank and the entrepreneur's family and friends.

Read more and learn from the forum from this article -Entrepreneurs learn how to plan finances for business.

Credit Cards For Small Business

Nowadays, there are already a lot of sources where small business owners can finance their business. One most popular but really difficult to achieve is capital from Angel investors, we also have small business loans and now we have bootstrapping. One way to bootstrap is get from personal funds, borrow from family members or friends and also credit cards.

Well, I just found this news article from Business Week about the use of credit cards in financing small business and reading the whole article really ranged the bell for me. Why? Because this news exposed to as a certain credit card company who will surprise you later on with their 30% interest rate. Woooh! That was too much.

As commercial loans become harder to find, small business owners give in to aggressive credit card marketers and get slammed with 30% interest rates. You must read the whole story of this news and it's for you to judge it.

Read more on Credit Cards Replace Small Business Loans.

Checklist: Business Credit Fundamentals

Developing your business credit rating is very important because we may like it or not, we'll be needing it maybe not right after then but in the nearer future, we will be needing it for financing our business.

Here's a checklist we need to establish our business credit rating.

You can start building your business credit even before opening your doors for business.

1. Establish your business as a separate entity in order to separate your business credit profile from your personal credit profile. This means you want your business to be structured as a corporation (a limited liability company, or LLC, is most common for small businesses).
2. Make sure you have a well-written business plan, which includes all of the sections typically found in such a plan along with the necessary financial details. Be prepared to defend everything in your business plan by showing how you came up with your figures and developed your plans. In addition, before progressing any further, you need to make sure that you have all necessary licenses and/or permits to start and run such a business. Your initial goal is to establish a viable business on paper, with all of the details already in place.
3. Find out exactly what the requirements are for lenders and for credit bureaus. By doing such a credit assessment, you will know what standards are expected before you start to establish and build a credit profile. It’s always advantageous to know what is required of you before embarking on any such project.
4. Start making initial purchases for your business. This is where you will need to invest in your business or have individuals you know who will invest. Then use that money to make purchases from vendors who will:
• Let you establish credit based on your personal credit background
• Report your transactions to the credit bureaus.
5. Build or improve your credit profile:
   • Pay within the set terms of suppliers.
   • Make sure to work with suppliers who are reporting your prompt payments.
   • Try to limit the number of inquiries regarding your credit profile.
   • Do not overdo it with business credit cards -– have a couple, not a dozen.
   • Do not let licenses or registrations lapse -– make sure you are on top of renewals
   or obtain any new licensing that you are expected to have for your business operations.
   • Maintain thorough, up-to-date financial records.
6. Be watchful of where your business stands in conjunction to your industry. You want to know if you are spending much more -- or less -- than your competitors. Lenders will certainly be aware of numbers that appear unusual.
7. Review your credit profiles from credit bureaus such as Dun & Bradstreet or Experian at least once or twice a year. Make sure they have the most accurate information and that no errors appear on the reports. If you do find errors, you need to contact the appropriate bureau and report the errors immediately. Always have paperwork ready to support your argument.

Source: Checklist: Business Credit Fundamentals

How Much Capital Should You Raise?

Since a company grows in value as it progresses, the founders can minimize their dilution by raising only as much money as necessary at each stage of growth. Ideally, you would raise money just as you need it, but that would require constant fund raising and preoccupy management with selling stock as opposed to building and selling product. Because investors tie the growth in the value of the business to the achievement of demonstrable milestones, increases in valuation can only be realized in a stepwise fashion.

So the answer to the question, "How much capital should we raise?", becomes apparent. You should raise as much capital as is necessary to get to the next major milestone that will justify a substantive increase in the company's stock price. When it comes to cash, the cost of under funding vastly exceeds the cost of over funding. It is therefore prudent to add a fudge factor to the estimate of how much capital is required to get to the next milestone.

What milestones justify successively higher prices? Typically they are the completion of a prototype, completion of the management team, conclusion of beta testing for a product, building a list of initial referenceable customers, getting customers to place repeat orders, reaching cash flow break-even and profitability, filling out a fuller product line, and completing a series of profitable, growing quarters on plan.

Prudent CEOs raise more capital than they think they'll need and rarely turn away capital in an oversubscribed round. There are two reasons why taking too little cash and running out is so costly. First, it puts the company in a very weak position when negotiating price with a new investor. More importantly, it reveals a lack of ability to forecast the future and therefore undermines new investors' confidence in management's plans. Most venture capitalists believe with good reason that there is an inverse correlation between bridge loans and a company's ultimate success. If it is available, Take The Money!

Source: Highland Capital Partners

Banks still lending to small businesses despite "crunch"

This will definitely still a good news for small business owners. Below is the article from bytestart.co.uk.

Despite the daily media coverage of the "credit crunch", new data suggests that the major high street banks are still lending to small businesses. In fact, term lending actually grew by 11% in the year to June 2008.

The statistics, released by the British Banking Association, compiled using data from the major high street banks showed that term lending grew to £44bn in the twelve months to June this year. Overdraft borrowing also increased to £9.2bn (a rise of 3% on the previous period).

Interestingly, the number of new businesses opening their first business account compared well to the previous 12 months with 143,404 new business accounts being opened, compared to 145,063 in the year to June 2008.

Read more on this good news at Banks still lending to small businesses despite "crunch".

Market your business with no financing at all

You might be tightening your budget on your business right now but marketing is always part of business and commonly is quite expensive. Well, this article I found from the business expert, Denise O' Berry, will be very helpful for us. Why? Simply because it's so interesting how to market your business with no cost.

Are you trying to promote your business with a tiny marketing budget? Opportunities are plentiful for low or no cost marketing. Here are a few that won’t cost you a cent.

The above is quoted from Denise O' Berry's post. Are you ready to learn how to market your business with no financing needed? Well, read more on Eight No Cost Ways to Market Your Business.

Business Finance Solutions by Recycling Company

A good idea is nice; solid execution even better. But none of it means much without the capital to support it all.

The idea quoted above is from Forbes.Com, an article about The Right and Wrong Ways to Raise Money. I would like to point out the solutions by Recycling Company presented in this article regarding business finance.

Equipment. Because the equipment was very specialized, debt-financing was hard to come by--not that the young company could have serviced it anyway. So the board decided to sell some equity. However, the environmental industry was not attractive to venture capitalists with dot-com stars in their eyes. Instead, RC used angel financiers, mainly from the board’s network, along with some friends and family money.

Real estate. Initially, RC leased its building at market rates, even though there were plenty of subsidies available for those who knew where to look. (I renegotiated the terms with the community whereby RC received a chunk of subsidized financing.)

Working capital. RC used a combination of equity and loans guaranteed by the Small Business Administration--though the founders had to pledge significant personal real estate as collateral. Cash flow was healthy enough to service the debt.

Additional working capital for growth. As the venture grew, the company sold off additional equity and I found attractive debt financing from a regional development financing institution.

Research financing. This money came from a state loan program designed to encourage new-product development.

Five Myths About Financing Start ups - Scott Shane

Here's one really exciting article written by Scott Shane where most entrepreneurs believe a bunch of myths about financing new companies that hinder their efforts to raise money.

Myth 1: It takes a lot of money to finance a new business.
Myth 2: Venture capitalists are a good place to go for start-up money.
Myth 3: Most business angels are rich.
Myth 4: Start-ups can’t be financed with debt.
Myth 5: Banks don’t lend money to start-ups.

The key points presented above is very well explained by Scott Shane in his article -
Five Myths about Financing Start-ups that Hurt Entrepreneurs. Better check it out guys!

Small Business Tidbits for the Day!

Tidbits for the Day:

When you start a small business you soon discover that things just don't happen in the real world the way they tell you in business textbooks: Invoices don't get paid by their due dates, ads don't consistently bring in customers, sales don't continually rise, and profits aren't always there. An act should really be get done to realize things!