Tag Archive: budgeting

7 investment principles for entrepreneurs

inc7 investment principles for entrepreneurs

by Karl Stark and Bill Stewart

 

7 investment principles for entrepreneurs. Those of us who have large investments in private businesses aren’t like typical savers. We need a different strategy for our personal investments.

 

Most personal finance experts tell a fairly consistent story about the need to build a diversified investment portfolio focused on long-term growth. But that type of investment strategy doesn’t necessarily apply to entrepreneurs and owners of private businesses, especially high-growth businesses.

We are a unique lot. Our concentrated investment in a risky but highly attractive company means that our overall investment portfolio is skewed differently than the average investor. One business owner once told us, “My business is my retirement strategy.” This perspective underscores the importance of building a plan that’s unique to your risk profile and your appetite for entrepreneurial opportunities. 7 investment principles for entrepreneurs

 

7 investment principles for entrepreneurs. Here are seven personal investment principles we have learned to keep in mind when your job is growing a business:

 

1. Build a “no touch” portfolio.

When you invest in stocks, bonds, and mutual funds, put them out of reach by creating “no touch” portfolios in accounts that you will never access. This will reduce the temptation to dip into long-term investments to address a short-term need for a cash infusion if your business is struggling. You can create more protection by loading up your retirement accounts and your kids’ education accounts. These are places where there is a huge financial penalty to accessing those funds, which will keep you honest. 7 investment principles for entrepreneurs

 

2. Protect your assets.

Structure your investments–and your company–so that creditors can’t reach your money if the business runs into financial or legal peril. In addition to structuring your business appropriately, this also involves transferring assets to spouses and children where possible and investing within retirement accounts and real estate, which in some cases are out of reach. 7 investment principles for entrepreneurs

3. Diversify away from your business.

Seek investments in your portfolio that are counter cyclical to your industry and business cycle. Investing in commodities may be risky in general, but if your business is heavily linked to the broader economy or public equity markets, a counter cyclical asset such as commodities may be attractive.

 

4. Invest more conservatively outside your business.

Most investment professionals recommend a heavy equity portfolio for younger professionals and a larger fixed-income portfolio for older individuals. Given that an entrepreneur’s business may largely cover her “equity risk,” she may be better off with a more conservative portfolio outside of her business. 7 investment principles for entrepreneurs

 

5. Build a cash cushion for future entrepreneurial ventures.

Most of us can’t pass up a good deal when it comes along. That’s why we became entrepreneurs in the first place. If you have the luxury of cash outflows from your business, put a sufficient amount aside so that you can keep some dry powder when new opportunities present themselves. 7 investment principles for entrepreneurs

 

6. Make smart business investments.

The best way to protect your personal finances is to ensure that your business has a sound, balanced approach to investing its capital. Our recent column on a growing business’s investment strategy discussed this in some detail. 7 investment principles for entrepreneurs

 

7. Build a great business model.

Of course, the best personal investment strategy may be your business itself. After all, your business can be your retirement strategy if it’s successful. Building your business should be what you do best. So focus your time and effort there and leave the investing to a professional. 7 investment principles for entrepreneurs

We should note that although we advise private investors on investing in growth companies, we aren’t investment advisers. We can share our own thoughts and experiences, but for more targeted advice you should seek a professional investment adviser. 7 investment principles for entrepreneurs

 

Article provided by Inc.com. © Inc.

Profit Centers: How to know how much money your business needs to survive and grow

Profit Centers: How to know how much money your business needs to survive and grow. Today small business get in trouble by not focusing on the things that make them more profitable – they do not take advantage of their profit centers – as a small business you must know and realize where you make the most profits – KNOW YOUR PROFIT CENTER!

Running a business day to day and figuring out your profit and loss (P&L) usually end up a task for an accountant once or twice a year, however maintaining a healthy business, you have to track all your revenues and expenses for your business at least quarterly to understand your debt, your tax liability, how much to reinvest in your business and build up a cash reserve. You need to know and understand and compare your business  every business in your industry.

Here are a few thing you know to be mindful in assessing your profit center.

  1. Trim the fat. Trimming the fat in your business
  2. Know Your Profit Center – You Must Focus on Your Target
  3. Small Business Needs Large Profits
  4. Minimize Overhead Results in Higher Profits
  5. Network Your Business and Use Social Media to Grow

 

Cash Flow Best Practices: Four Ways to Improve Day-to-Day Money Management

Cash Flow Best Practices: Four Ways to Improve Day-to-Day Money Management
by Sherron Lumley.

When a business has more money coming in than going out, that’s positive cash flow. Ideally, this is the zone in which a small business could operate forever, like a perpetual motion machine. Even though understanding cash flow seems simple, the day-to-day reality of it can cause mayhem. What to do when a customer payment is in the pipeline for next month, but employees must be paid on Friday, raw materials purchased next week, and the electricity bill taken care of by 5:00 p.m. today? These are the do-or-die questions of cash flow.

According to business information giant Dun and Bradstreet, 90 percent of small business failures are caused by poor cash flow. That’s why creating a cash flow budget, maintaining a cash reserve, getting paid on time, and managing expenses are critical policies to keep your small business successful.

Cash flow management would appear simple except for one major complication, and that’s credit. Accounts receivable and accounts payable are by-products of credit arrangements and the length of time between money paid and money received is called the cash conversion cycle. In a nutshell, cash flow management is about minimizing this cash conversion cycle. The ins and outs of cash flow fill some hefty tomes of financial literature, but here are four simple best practices to improve day-to-day money management for small businesses.

PQ_CashFlow.jpgFirst, make a plan

“The first requirement is an effective budget. If you don’t know what your cash flow is, it will be difficult to manage. Both your budget and your projections should be reviewed and adjusted on a timely basis,” says Andrew Schrage, former hedge fund analyst and founder of Money Crashers, a financial advice website.

The plan, otherwise known as a cash flow budget, is a way to project your business’s cash inflows and outflows over a defined period of time, say six months. The U.S. Chamber of Commerce provides a free download of a cash flow budget worksheet with relevant categories and explanations of what you need to do to prepare a cash flow budget. You start with the current cash, add the projected cash inflows, and then subtract the cash outflows to get your cash flow bottom line.

Have a contingency plan (or two)

In order to anticipate cash inflow, a sales forecast is needed, which can be based on recent revenues, seasonal sales, or market research. It’s important to have several projections, including best-case and worst-case sales scenarios, with a contingency plan of how to respond to these different situations. In the event sales are lower than expected or an unforeseen crisis happens, be prepared by maintaining a cash reserve, advises Dun and Bradstreet. Have alternate sources of cash for when unexpected needs arise, and get to know your bankers before you need a loan from them.

“If you’re in a business with inventory, or if you have employees, you should have a six-month cash reserve,” advises SCORE.org, a non-profit entrepreneurial mentor organization that works in conjunction with the U.S. Small Business Administration.

Managing inventory—mind the gap

The cash conversion cycle breaks down into three categories: accounts payable, accounts receivable, and inventory. Too much or obsolete inventory leads to negative cash flow. Although some cash is going to have to be spent to have inventory on hand, clearly, the less inventory sitting around and becoming obsolete, the better. A closer look: The Inventory Conversion Period (ICP) refers to the length of time between the purchase of raw material and the sale of the finished product. Since the business must wait for the sale, then wait some more for the accounts receivable to be converted to cash; any money tied up in maintaining inventory becomes a drag on cash flow. Conversely, a business can temporarily boost its coffers by waiting until the end of the reporting period to pay its own bills.

If possible, wait 30 or 60 days to pay suppliers and ask for a discount for early payment. “1

You know that you can improve cash flow by slowing down your payment of accounts payable,” says Sam Thacker, writing for Dun & Bradstreet. Thacker is a partner in the Austin, Texas based financial consulting firm, Business Finance Solutions, which assists small businesses with financing challenges.

The flip side of the ICP is the Receivable Conversion Period (RCP), which is the time lag between selling on credit and receipt of cash for the accounts receivable. When customers or business partners show stable or positive trends in payment and avoid delinquency, expand their credit line to encourage revenue growth.

“Having a good handle on your accounts receivable is very critical to improving your cash flow, especially during tough economic times when everyone else is slowing down their payables,” Thacker points out.

Cut costs and expand with caution

“The more money you can save, the less you will need to rely on outside investors,” advises Schrage at Money Crashers. For example, “Start by saving money on start-up costs. Investigate your options to acquire used computer equipment, office furniture, and other supplies,” he says.

“You can also consider delaying hiring as one of a number of strategies to trim expenses,” adds Schrage. Running a business solo can save you a great deal of money, as long as you’re willing to put in the work.”

Cutting costs can significantly free up your small business’s cash flow. Simple initiatives such as keeping an eye on overhead expenses such as rent and travel, and shopping for competitive prices among suppliers can make a big difference.

Lastly, expand with caution. “In addition to your budget and income and expense projections, you should have a plan in place as to how and when you plan to expand,” explains Schrage. “The expand-at-all-costs business model is not very effective. Once you’ve got larger cash reserves and more experience in your industry, then you can be a little more aggressive in terms of growth.” Expanding through your business’s own cash flow is often an attractive alternative to outside debt or equity financing.

Cash flow resources available online:

The U.S. Chamber of Commerce has information on preparing a sales forecast and an online cash flow budget worksheet.
Microsoft Office has a free template online for creating a cash flow statement.
Score.org provides a free template for a 12-month cash flow projection.
The U.S. Small Business Administration provides guidelines for 7(a) loans (the most basic and most used within the SBA program), for starting, acquiring and expanding a small business.
Dun & Bradstreet provides information on establishing, building and monitoring business credit.

Cash Flow Best Practices: Four Ways to Improve Day-to-Day Money Management

Cash Flow Best Practices: Four Ways to Improve Day-to-Day Money Management
By Sherron Lumley.

When a business has more money coming in than going out, that’s positive cash flow. Ideally, this is the zone in which a small business could operate forever, like a perpetual motion machine. Even though understanding cash flow seems simple, the day-to-day reality of it can cause mayhem. What to do when a customer payment is in the pipeline for next month, but employees must be paid on Friday, raw materials purchased next week, and the electricity bill taken care of by 5:00 p.m. today? These are the do-or-die questions of cash flow.

According to business information giant Dun and Bradstreet, 90 percent of small business failures are caused by poor cash flow. That’s why creating a cash flow budget, maintaining a cash reserve, getting paid on time, and managing expenses are critical policies to keep your small business successful.

Cash flow management would appear simple except for one major complication, and that’s credit. Accounts receivable and accounts payable are by-products of credit arrangements and the length of time between money paid and money received is called the cash conversion cycle. In a nutshell, cash flow management is about minimizing this cash conversion cycle. The ins and outs of cash flow fill some hefty tomes of financial literature, but here are four simple best practices to improve day-to-day money management for small businesses.

PQ_CashFlow.jpgFirst, make a plan

“The first requirement is an effective budget. If you don’t know what your cash flow is, it will be difficult to manage. Both your budget and your projections should be reviewed and adjusted on a timely basis,” says Andrew Schrage, former hedge fund analyst and founder of Money Crashers, a financial advice website.

The plan, otherwise known as a cash flow budget, is a way to project your business’s cash inflows and outflows over a defined period of time, say six months. The U.S. Chamber of Commerce provides a free download of a cash flow budget worksheet with relevant categories and explanations of what you need to do to prepare a cash flow budget. You start with the current cash, add the projected cash inflows, and then subtract the cash outflows to get your cash flow bottom line.

Have a contingency plan (or two)

In order to anticipate cash inflow, a sales forecast is needed, which can be based on recent revenues, seasonal sales, or market research. It’s important to have several projections, including best-case and worst-case sales scenarios, with a contingency plan of how to respond to these different situations. In the event sales are lower than expected or an unforeseen crisis happens, be prepared by maintaining a cash reserve, advises Dun and Bradstreet. Have alternate sources of cash for when unexpected needs arise, and get to know your bankers before you need a loan from them.

“If you’re in a business with inventory, or if you have employees, you should have a six-month cash reserve,” advises SCORE.org, a non-profit entrepreneurial mentor organization that works in conjunction with the U.S. Small Business Administration.

Managing inventory—mind the gap

The cash conversion cycle breaks down into three categories: accounts payable, accounts receivable, and inventory. Too much or obsolete inventory leads to negative cash flow. Although some cash is going to have to be spent to have inventory on hand, clearly, the less inventory sitting around and becoming obsolete, the better. A closer look: The Inventory Conversion Period (ICP) refers to the length of time between the purchase of raw material and the sale of the finished product. Since the business must wait for the sale, then wait some more for the accounts receivable to be converted to cash; any money tied up in maintaining inventory becomes a drag on cash flow. Conversely, a business can temporarily boost its coffers by waiting until the end of the reporting period to pay its own bills.

If possible, wait 30 or 60 days to pay suppliers and ask for a discount for early payment. “1

You know that you can improve cash flow by slowing down your payment of accounts payable,” says Sam Thacker, writing for Dun & Bradstreet. Thacker is a partner in the Austin, Texas based financial consulting firm, Business Finance Solutions, which assists small businesses with financing challenges.

The flip side of the ICP is the Receivable Conversion Period (RCP), which is the time lag between selling on credit and receipt of cash for the accounts receivable. When customers or business partners show stable or positive trends in payment and avoid delinquency, expand their credit line to encourage revenue growth.

“Having a good handle on your accounts receivable is very critical to improving your cash flow, especially during tough economic times when everyone else is slowing down their payables,” Thacker points out.

Cut costs and expand with caution

“The more money you can save, the less you will need to rely on outside investors,” advises Schrage at Money Crashers. For example, “Start by saving money on start-up costs. Investigate your options to acquire used computer equipment, office furniture, and other supplies,” he says.

“You can also consider delaying hiring as one of a number of strategies to trim expenses,” adds Schrage. Running a business solo can save you a great deal of money, as long as you’re willing to put in the work.”

Cutting costs can significantly free up your small business’s cash flow. Simple initiatives such as keeping an eye on overhead expenses such as rent and travel, and shopping for competitive prices among suppliers can make a big difference.

Lastly, expand with caution. “In addition to your budget and income and expense projections, you should have a plan in place as to how and when you plan to expand,” explains Schrage. “The expand-at-all-costs business model is not very effective. Once you’ve got larger cash reserves and more experience in your industry, then you can be a little more aggressive in terms of growth.” Expanding through your business’s own cash flow is often an attractive alternative to outside debt or equity financing.

Cash flow resources available online:

The U.S. Chamber of Commerce has information on preparing a sales forecast and an online cash flow budget worksheet.
Microsoft Office has a free template online for creating a cash flow statement.
Score.org provides a free template for a 12-month cash flow projection.
The U.S. Small Business Administration provides guidelines for 7(a) loans (the most basic and most used within the SBA program), for starting, acquiring and expanding a small business.
Dun & Bradstreet provides information on establishing, building and monitoring business credit.