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The Importance and Benefits of Small Business Certifications

The Importance and Benefits of Small Business Certifications

There are many important benefits and advantages available to businesses owned by women and/or minorities, but in order to qualify for them a business must become certified as a minority- or woman-owned enterprise. Connections, marketing assistance, and technical training are just some of the benefits that come with certification, says Susan Rittscher, president and CEO of the Center for Women & Enterprise, the New England affiliate of the Women’s Business Enterprise National Council, a leading certifier of women-owned businesses. (Others include the National Women Business Owners Corporation and the National Association of Women Business Owners.)

“First and foremost, if the diverse-owned business is interested in pursuing bids or contracts with a large corporation with a supplier diversity program, a state agency, or a federal agency, they must be certified in order to count toward supplier diversity goals,” Rittscher says. Another benefit of certification is connections to other certified businesses, which can be a powerful network of potential partners, clients, and advisors and mentors. “Certification is a strong marketing and selling tool for business owners when leveraged effectively,” she adds. Certified businesses may also have access to exclusive programs and services such as professional development workshops and networking and matchmaking events.

Tom Greco, vice president of ThomasNet.com, a free platform with a database of more than 610,000 companies, notes that there are many different ownership/diversity certifications that provide a competitive advantage to qualifying companies, and many businesses and government agencies are anxious to do business with them. “Indeed, 72 percent of buyers recently surveyed by CAPS, a research arm of the Institute for Supply Management, said they would be increasing their spending with diverse suppliers. Diverse businesses include Women-Owned Businesses and Minority-Owned Businesses as well as Veteran-Owned Businesses, Small Disadvantaged Businesses, HUBZone Businesses, and Service-Disabled Veteran Businesses,” he says.

While the process for obtaining various kinds of certification varies, Greco suggests that a business seeking any of the certifications mentioned above start by self-registering with the federal government’s System for Awards Management (SAM), since that is a requirement for most types of certification. Next, seek out one of the major certification organizations for your diversity group—such as WBENC for a women-owned business or the National Minority Supplier Development Council for a minority-owned firm. In most cases, minority-owned business certification falls under the purview of the individual states. Check out this useful list of certifying agencies by state to learn more.

It is important to note that in order to qualify for minority- or women-owned certification, the business must not only be owned by minorities or women but also controlled by them, says Dean dt ogilvie [ed. note: lack of capitalization is intentional and should be retained], the dean and a professor of business strategy at the Rochester Institute of Technology’s Saunders College of Business. “They have to be the ones making the decisions about strategy, business, and structure. They can’t just be figureheads to get the certification,” she warns. Owners must provide required documentation to prove ownership and control; they must have contributed capital and/or expertise to the business; they must be U.S. citizens (or, for some programs, resident aliens); and they must be independent in decision-making, Rittscher says.

Lisa Firestone is president and owner of Managed Care Advisors (MCA), a woman-owned employee benefits and disability management consulting and workers’ compensation case management firm based in Bethesda, Maryland, and she believes certifications and the set-asides to which they provide access play an important role in leveling the playing field for companies like hers. MCA is a certified minority business enterprise in Maryland and several other states and a WBENC-certified woman-owned business. In 2012 it also became certified as an Economically Disadvantaged Woman-Owned Small Business. “Honestly, before my business entered into government contracting, certifications and set-asides were unfamiliar concepts, and ones that made me a bit uncomfortable,” she says. “But what I have learned is that there really is no ‘special consideration,’ but just an opportunity to level the playing field and compete effectively. Certifications can get your business noticed, but they are not a direct conduit to a contract. You still have to get out there, compete for that business, and win it.”

May 15, 2014 Today's Business, , , , , , , , , , 0 Read more >

Using Your Benefits of Certification To Advance Your Business

Using Your Benefits of Certification To Advance Your Business

There are many important benefits and advantages available to businesses owned by women and/or minorities, but in order to qualify for them a business must become certified as a minority- or woman-owned enterprise. Connections, marketing assistance, and technical training are just some of the benefits that come with certification, says Susan Rittscher, president and CEO of the Center for Women & Enterprise, the New England affiliate of the Women’s Business Enterprise National Council, a leading certifier of women-owned businesses. (Others include the National Women Business Owners Corporation and the National Association of Women Business Owners.)

“First and foremost, if the diverse-owned business is interested in pursuing bids or contracts with a large corporation with a supplier diversity program, a state agency, or a federal agency, they must be certified in order to count toward supplier diversity goals,” Rittscher says. Another benefit of certification is connections to other certified businesses, which can be a powerful network of potential partners, clients, and advisors and mentors. “Certification is a strong marketing and selling tool for business owners when leveraged effectively,” she adds. Certified businesses may also have access to exclusive programs and services such as professional development workshops and networking and matchmaking events.

Tom Greco, vice president of ThomasNet.com, a free platform with a database of more than 610,000 companies, notes that there are many different ownership/diversity certifications that provide a competitive advantage to qualifying companies, and many businesses and government agencies are anxious to do business with them. “Indeed, 72 percent of buyers recently surveyed by CAPS, a research arm of the Institute for Supply Management, said they would be increasing their spending with diverse suppliers. Diverse businesses include Women-Owned Businesses and Minority-Owned Businesses as well as Veteran-Owned Businesses, Small Disadvantaged Businesses, HUBZone Businesses, and Service-Disabled Veteran Businesses,” he says.

While the process for obtaining various kinds of certification varies, Greco suggests that a business seeking any of the certifications mentioned above start by self-registering with the federal government’s System for Awards Management (SAM), since that is a requirement for most types of certification. Next, seek out one of the major certification organizations for your diversity group—such as WBENC for a women-owned business or the National Minority Supplier Development Council for a minority-owned firm. In most cases, minority-owned business certification falls under the purview of the individual states. Check out this useful list of certifying agencies by state to learn more.

It is important to note that in order to qualify for minority- or women-owned certification, the business must not only be owned by minorities or women but also controlled by them, says Dean dt ogilvie [ed. note: lack of capitalization is intentional and should be retained], the dean and a professor of business strategy at the Rochester Institute of Technology’s Saunders College of Business. “They have to be the ones making the decisions about strategy, business, and structure. They can’t just be figureheads to get the certification,” she warns. Owners must provide required documentation to prove ownership and control; they must have contributed capital and/or expertise to the business; they must be U.S. citizens (or, for some programs, resident aliens); and they must be independent in decision-making, Rittscher says.

Lisa Firestone is president and owner of Managed Care Advisors (MCA), a woman-owned employee benefits and disability management consulting and workers’ compensation case management firm based in Bethesda, Maryland, and she believes certifications and the set-asides to which they provide access play an important role in leveling the playing field for companies like hers. MCA is a certified minority business enterprise in Maryland and several other states and a WBENC-certified woman-owned business. In 2012 it also became certified as an Economically Disadvantaged Woman-Owned Small Business. “Honestly, before my business entered into government contracting, certifications and set-asides were unfamiliar concepts, and ones that made me a bit uncomfortable,” she says. “But what I have learned is that there really is no ‘special consideration,’ but just an opportunity to level the playing field and compete effectively. Certifications can get your business noticed, but they are not a direct conduit to a contract. You still have to get out there, compete for that business, and win it.”

 

April 30, 2014 Today's Business, , , , , , , , , , 0 Read more >

Turn Your Receivable into Cash Fast

Turn Your Receivable into Cash Fast

by Erin O’Donnell.

 

Christiane Waldron once spent a month chasing $600. As president and CEO of Jenetiqa, a luxury skin care products company, she sells to salons, physicians, and boutiques on consignment. That means she’s often waiting to get paid.

 

One client dodged her for weeks, with a new excuse each time. She didn’t have her checkbook. She had a meeting. She needed to transfer money. Waldron drove back and forth across town time and again, trying to meet up with her in person.

 

“I told her, ‘I can’t extend credit. We’re both small businesses, and I have to get paid,’ Waldron recalls. “She asked for another discount.”

 

Waldron says clients make similar excuses with maddening regularity. Since she started Jenetiqa in 2011, she’s learned some lessons the hard way. “As a small business, you cannot operate on trust, but sometimes you don’t have a choice,” she says.

 

It’s common for small businesses to struggle with uneven cash flow. But business advisors say there are ways to even out the feast/famine cycle by getting paid faster. It takes planning, communication, and lots of follow up. Below, some small business owners explain how they get customers to pay on time.

 

Require some payment up front

Business consultant Shell Black advises business owners to require a percentage of payment up front for project-based work. His Dallas-based company, ShellBlack.com, is a Salesforce Cloud Alliance Partner that helps other small businesses set up and make use of Salesforce’s customer relationship management products.

Black says he’ll commonly ask for a 50 percent deposit of the total cost to schedule a consultant’s time. Then, he bills the rest at natural project milestones such as the completion of data migration or user training.

 

Ironically, the companies with the deepest pockets are the ones that seem to take the longest to pay. “Bigger companies throw their weight around a little bit. Small businesses understand the necessity of getting paid,” Black says.

 

Set expectations

Be direct with customers about when you need to be paid, says Neil Kristianson, founder of Only Sky Artist, a music management firm in Chicago.

 

In his current business, Kristianson finds himself using many of the same practices he did when he remodeled homes for a living. Back then, he would draw up a calendar for each project, laying out the work to be done, inspection dates, and so on. Payment dates were written right on the calendar, and every client received a copy. The effect was remarkable. “My accountant was amazed that my receivables rarely went past five days,” Kristianson says.

 

As a consultant to musicians, he still uses the calendar system. It’s adaptable to any project-based business, Kristianson says, especially those that don’t operate on monthly invoices. And it puts the responsibility on the client to manage his or her cash flow.

 

“Once I figured that out, I realized I had to do a better job of communicating when I need to get paid,” he says. “I got tired of them saying, ‘Can you wait while I move some money around?’”

Create an even stream of cash

Kristianson also timed his invoicing and due dates to his project costs, so that he wasn’t scrambling for cash. In construction, it’s easy to know when you’ll be buying lumber or paying a sub-contractor, so he made sure to structure his payment schedule accordingly. He learned to forecast break-even times, and that’s when he would make the next invoice due.

 

He also varied the number of payments based on project size. Smaller jobs were broken into three payments, but for bigger jobs he sent out up to seven invoices.

 

Black recommends more frequent invoices to smooth out the peaks and valleys of cash flow. Even though it means more paperwork, he says, it also means you can invoice for smaller amounts, and that can encourage clients to pay quicker.

 

“It pulls the cash flow forward,” Black says. “If you’re waiting until the end of the month to bill, you’ve already paid the payroll or the cost of goods on that deliverable. You’re potentially waiting 30 days to get paid.”

 

Sending invoices for smaller amounts can also negate the need for the boss’s signature. Black knows of one company where invoices for more than $10,000 require the approval of the CEO, who is notorious for letting things languish on his desk.

 

Get ahead of excuses

One of the most common excuses business owners hear for non-payment is “I didn’t see that invoice.” Now, technology is helping to eliminate that reason.

 

Waldron sends her invoices through QuickBooks, but she has also started following up via email, with the invoice attached as a PDF file. A week later, she follows up again with a phone call or text. And she now accepts payments on her mobile phone. “It takes perseverance, but it wears on you because the cash flow is so tight,” Waldron says. “You can’t afford to have $2,000 of accounts receivable out there.”

 

Software like Salesforce is pulling back the curtain on customers’ claims of ignorance, too, because it tells you when a client has viewed the invoice, Black says.

 

If you put your expectations in writing, Black says, it’s easy to remind customers about the terms of your agreement. For instance, you can reserve the right to stop work on an unpaid invoice after 30 days. Black says he recalls mentioning that to a client only once. “It’s there because it helps you have a little leverage, in case you get someone who doesn’t pay you for 60 or 80 days,” he says.

 

Finally, Black says, don’t wait for a bill to go past due. If a couple of weeks have gone by since you sent the invoice, it’s perfectly reasonable to call and remind the customer that it’s due soon.

 

Waldron says offering multiple ways to pay, including Paypal and wire transfer, also helps eliminate excuses. As much as she hates to lose business, she will also cut off delinquent clients unless they pay in advance.

 

Waldron says she has learned to be persistent and to set the right tone from the first transaction. “If a customer is late in paying you the first time, chances are it will be that way every time.”

 

April 21, 2014 Today's Business, , , , , , , , , 0 Read more >

Secrets to Managing Your Cash Flow

Secrets to Managing Your Cash Flow

Posted by Steve Strauss in General Businesson Nov 13, 2012 9:04:36 AM

A few years ago I did a series of columns for USA TODAY about how to be a successful franchisee. Although I have started two businesses, I had never owned a franchise, and so I spoke with several people in the franchising industry, including a few very successful franchisees.Steve-Strauss--in-article-Medium.png I wanted to know what the successful franchisee does right.

 

Some of the things were self-evident: Great franchisees tended to be great bosses, they understood marketing and advertising, they took advantage of all of the perks that came with the franchise system and so on.

 

But one trait that came out of this research was unexpected: Successful franchisees are good at managing their cash flow.

 

Cash flow? Yes, cash flow.

 

A Subway franchisee explained it with this story: A competitor had opened an ice cream franchise near him one spring. The store had been very busy all summer but by the next February, it was out of business. The gossip on the street was that the owner did not manage his cash flow properly— he hadn’t planned for business to slow down in the winter and had not budgeted to make his summer windfall last through the colder months.
Click here to read more articles from small business expert Steve Strauss

 

 

When discussing entrepreneurship and small business, plenty of big, fun ideas get bandied about, but cash flow usually is not one of them. And yet, the fact is if you want to be successful then you have to manage your cash flow well, period. It is one of those unglamorous, yet completely necessary, things that make a business work.

 

Consider this sobering statistic from Dun & Bradstreet’s Failure and Startups Analysis: Businesses doing cash flow planning once a year have only a 36 percent survival rate ovnov 13 pull quote.pnger five years compared to those that plan monthly, which have an 80 percent survival rate.

 

(A side note: It is important to understand that cash flow is not the same as profit, though they may seem similar. Cash flow is the cash position your business is in every month as funds come into and out of your business. Profit is the excess of income after expenses.)

 

My friends here at Bank of America and I presented a webinar on November 8 (if you missed it, check it out here), where we discussed cash flow management and highlighted just how important cash flow is to the success of a small business. We also developed a white paper (An Introduction to Cash Flow Management), which is accessible here on the Small Business Community.  These materials were designed to help you better understand how to manage your cash flow, which can essentially be divided into two categories – inflow and outflow.  If you can get a handle on each of these, your cash flow situation will be solid.

 

Inflow is simply a matter of making money and getting paid. To increase your inflow, you need to:

 

  • Invoice on time
  • Get your invoices paid on time (no more Net 60!)
  • Have enough sales to generate enough ongoing income to handle your debts (your outflow) in a timely manner

 

Outflow is your costs. It is the combination of your debts, expenses, overhead, taxes, labor and so on. Aside from maximizing your inflow, the other way to increase your cash flow situation then is to get a handle on your outflow. This would include:

 

http://smallbusinessonlinecommunity.bankofamerica.com/community/running-your-business/generalbusiness/blog/2012/11/13/secrets-to-managing-your-cash-flow

November 14, 2012 Today's Business, , , , , , 1 Read more >

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

 

October 11, 2012 Today's Business, , , , , , , 13 Read more >

5 Common Issues That Small Business Owners Face

5 Common Issues That Small Business Owners Face
Posted by Steve Strauss in General Business on Sep 25, 2012 9:03:57 AM

In the 1950s, Ray Kroc was just a milkshake mixer salesman, when one day while making the rounds he came across a restaurant owned by Richard and Maurice McDonald. Kroc was not only amazed by how few items the restaurant sold and how clean it Steve-Strauss–in-article-Medium.pngwas, but also by how efficiently it was run. He convinced the brothers to make him their agent for the restaurant and within a few years, he bought them out completely and had the dream of taking the concept coast-to-coast.

Here, though, Kroc ran into a problem. He needed a way to make it possible for the restaurant to stay successful even when operating in another place, where the support and resources available might be different or even nonexistent. His solution? Turn the business into a franchise. That is, replicate exactly how the brothers had run their successful restaurant and make the same support and resources available to the entire line of businesses.

Kroc coined a phrase to explain the concept: “In business for yourself, but not by yourself.” The idea is that with franchising, you not only are buying a system and brand, but also a built-in team to help you so that you don’t have to do everything alone. Ray Kroc hoped to show potential franchisees that by working with him and by becoming a McDonald’s franchisee, their path to small business success would be easier.

Small business owners, no matter the industry, have faced and will always face common issues. After all, while flipping burgers is different than, say, selling flowers, both businesses still require that the owner deal with taxes, handle employees, get customers, etc. They are not that dissimilar. And becoming part of a franchise might not always be the best solution to a problem – it’s just one of the many creative ways to look at solving any of the common issues for small business owners.

Click here to read more articles from small business expert Steve Strauss

Here are five common issues that all small business owners face:

1. Getting the help they need: The two complaints that I hear most often from other small business owners are “not enough time” and ”not enough money.” Not surprisingly, the issues are tied to one another.

A lack of extra capital means that many small business owners do too much themselves. Not only does that result in the ”not enough time” conundrum, but ironically, it reinforces the ”not enough money” one too. The fact is, you can really only grow your business by spending the dough to bring in the help you need. That will create an alternate cycle where (hopefully) you can make more money and thus bring in even more help.

2. The cash crunch: A declaration of “not enough money” oftentimes means there is a cash crunch, and there are all kinds of reasons for them. You might own a seasonal business that makes very little revenue at some points of the year. You might need to spend unexpectedly to upgrade equipment. Whatever the reason, there are a few smart ways to deal with this problem:

Budget better: If you know you are always extra busy around the holidays, then you simply must make that money last all year long.
Create additional profit centers: Again, if you’re a holiday seasonal business, figure out a way to make money during the summer as well as in December.
Get a loan or line of credit: Educate yourself on the best avenues to new capital. Take advantage of the financial institutions that are in business to help you get the capital you need.

3. Challenging clients: Back when I practiced law, we had a saying that we thought was clever but is probably said by many in a client service business: “It would be a great business,” we would joke, “if it weren’t for the clients.”

Look, we all have them – problem clients. The question really is, what do you do about them? One school of thought is simply to tolerate them, and that makes sense, especially if they are an important client. However, sometimes, when the bad client goes from challenging to a real distraction from other important things, the only thing to do is to cut them loose.

4. Recruiting and retaining top talent: One thing the best business owners know is that they are only as good as their people. The challenge for the small businessperson is that keeping great talent around can be tough when budgets don’t always allow for big raises. The trick then is to find out what your best people need and give that to them, whether it be recognition, training, a better title, an opportunity to try something new, or room for advancement.

For more, http://smallbusinessonlinecommunity.bankofamerica.com/community/running-your-business/generalbusiness/blog/2012/09/25/5-common-issues-that-small-business-owners-face

September 25, 2012 Today's Business, , , , , , , 6 Read more >

Discounting’s Downside: The long-term costs of constant price cuts and ‘always-on sale’ mentality by Cindy Waxer

Discounting’s Downside: The long-term costs of constant price cuts and ‘always-on sale’ mentality by Cindy Waxer.

Customers love a good bargain. But for a small business, deciding on a price that will lure shoppers while still generating a profit is a difficult endeavor. After all, if you price a product too low, a deep discount can significantly eat into a company’s profits. At the same time, by failing to offer an appropriate price cut, you might push consumers into the arms of competitors.

While there’s no secret formula for setting a price, successful small businesses watch out for the dangers of deep discounting. Read what today’s experts have to say about seven important risks of constant price cuts.

Price sensitivity. Selling your products and services at a fraction of the cost can drive consumer price sensitivity, affecting shoppers’ buying preferences and encouraging them to pinch pennies rather than part with their hard-earned dollars. “You’re attracting a discount coupon shopper and that’s not how you make money,” warns Bob Phibbs, a retail consultant and author of Groupon – Why Deep Discounts are Bad for Business. “With constant discounts, the only way you’re going to keep customers coming back is by giving them equally as big a discount every time.”

In fact, according to a recent Retail Systems Research report, Retail Pricing In a Post-Channel World, 67 percent of survey respondents report consumer price sensitivity as a top-three business challenge, up from 46 percent in 2010.

Discounts_PQ.jpgEroded profit margins. While price chopping pleases shoppers, it can drastically eat into a small business’ profits. “Companies don’t run on revenue; they run on profit,” warns Brad Sugars, founder of business coaching firm ActionCOACH. “The moment you start discounting, you lose a lot of your profits.”

Phibbs agrees. “When we give these deep discounts, we kid ourselves and say that it’s because the economy is bad or we need the money. But what we’re essentially doing is giving up on being able to charge full price.”

Lost customers. Consider the loyal, long-time shopper who purchased a blouse in-store for $80 and then discovered that her neighbor purchased the same item on the company’s website for $60. Chances are, you’ve not only angered that loyal customer, but you’ve lost her to the competition. By failing to consistently cut prices across multiple channels, Phibbs says, “Your loyal customers are going to wind up very upset with you. That’s because someone who hasn’t made you successful is now getting a better deal than them.” Instead, Phibbs recommends that small businesses “understand that it’s about getting people who already love you to come back more often.”

The wrong customer. Face it, says Sugars: “The simple reality is there are always going to be people who go towards the best price.” But do you really want those folks to be your key customers? According to Sugars, small businesses that heavily discount their products and services will “start attracting a type of customer who isn’t there for the service, the loyalty, or the value you add; they’re there for the price. The moment you start targeting these price shoppers, your quality customers will be long gone.”

What’s more, this discount pricing strategy may devalue your brand’s ultimate appeal. American automakers learned this hard lesson during the early part of the last decade, when their heavy reliance on incentives to sell their cars temporarily boosted sales but sent the wrong, long-term message to consumers. As Claes Fornell, director of the National Quality Research Center, explained in a Ward’s Auto article from that period, consumers began to perceive non-discounted vehicles from imported brands as having more value than the price-chopped domestic brands. “And once you start discounting it’s hard to get out of the habit, and consumers come to expect it,” Fornell noted. “Discounts are a two-edge sword and have a negative effect. Low price contributes to a low opinion.”

Price wars. Pricing your products competitively is key to running a successful business, but not if it means engaging in an all-out war where business owners lose perspective. “There’s always somebody out there willing to give a lower price than you—I don’t care what it is,” says Phibbs. “But it’s a bad rabbit hole to go down.”

Ignoring the obvious. A trap that many small business owners fall into is focusing more on competitors’ prices than on their customers’ needs. “Learn how to sell,” advises Sugars, whether that entails offering customers special services such as home delivery, or refining your sales pitch. “At the end of the day, the best stores are going to curate the best customer experience,” says Phibbs. “And by giving people the experience they want, customers are going to drive past a competitor to get that experience again. He cites customer-conscious companies such as Lululemon Athletica and Victoria’s Secret as businesses that are “hitting on so many levels that are right because the customer experience isn’t just okay, it’s great.”

http://smallbusinessonlinecommunity.bankofamerica.com/community/managing-your-finances/accountingandbudgeting/blog/2012/09/12/discounting-s-downside-the-long-term-costs-of-constant-price-cuts-and-always-on-sale-mentality

September 12, 2012 Today's Business, , , 5 Read more >

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.

April 26, 2012 Today's Business, , , , , , , , , , , 6 Read more >

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.

April 23, 2012 Today's Business, , , , , , , , , , , 41 Read more >

Charting Your Business’s Success

Breakeven Analysis, Pro Forma Forecasting, and Growth Strategy.

by Sherron Lumley.

New Yorker Douglas Tausik is thinking outside of the box. In 2007, he founded Tropix Technology, a business that sells laptop computers to the East African market, specifically in Uganda. His big idea came from a visit to the area and a discovery that fewer than two percent of the Ugandan population owned a computer. “Our ultimate goal is to provide doctors, teachers, and students with computers,” says Tausik.

So far, Tropix has sold 50,000 computers in Uganda, a good start toward bringing computer literacy to the country via affordable computers that are made in China. To stay on track, Tausik relies upon several financial planning tools to help him answer three vital questions that every small business owner must ask:

Will the business be able to make money?
How long will it take until it’s profitable?
How will I know if the business is meeting its goals?

Breakeven analysis, forecasting, and cash flow projections—these are the things small business dreams are made of. Each tool provides a strategic starting point for making the envisioned future a reality.

Breakeven analysis

In Tropix Technology’s case, profit expectations and expenses are kept to an absolute minimum in order to make the computers affordable to Ugandans, lowering the breakeven point. To break even is a simple enough concept: at a certain point, expenses will be covered and the business will start to make money. Breakeven analysis means calculating all expenses the business incurs and determining how much product or service must be sold and at what price to make a profit.

For Tropix Technology, one of the main expenses is providing after-sale service and repair in Uganda, a benefit that has never been available before. “We had to analyze how many units to sell per month to operate the service center,” says Tausik. Some of the elements that go into a breakeven analysis include raw materials, labor, utilities, fuel, marketing, fixed costs such as rent, and variable costs such as shipping, selling expenses/sales commissions, and taxes.

The U.S. Small Business Administration (SBA) offers a link to preparing a break-even analysis provided by Nolo.com, a legal publisher in Berkeley, California. Nolo also provides information on its website on preparing a profit and loss forecast, a cash flow projection and estimating start-up costs.

Pull-Quote.pngPro forma forecasts and cash flow

“We are definitely involved in forecasting and do cash flow projections,” says Tausik. “We have to fund the manufacturing of the computers, then we have to ship, then collect funds, so we have to analyze the cash requirements. Our commitment is never beyond the actual shipment because we do not do the manufacturing. We gather the orders, then when we have enough, we place the order in China,” he says.

The Latin term pro forma (as a matter of form) in business means projecting the future status of the company based on current performance, without including unusual and non-recurring transactions. Pro forma financial statements are similar to regular financial statements, except that they are educated guesses of what will happen in the future, based on the goals of the company and what is known right now. A pro forma balance sheet will include assumptions of future cash flows, assets, and liabilities. A pro forma income statement includes expected sales revenue, cost of goods sold, losses, operating expenses, equipment, depreciation and taxes. A pro forma statement of cash flow will predict inflow and outflow of cash to the business and give insight on potential shortages.

Realistic pro forma forecasts can be helpful to a small business by providing insight into needed course corrections. To make a forecast with any degree of accuracy, some actual data is needed, such as prior revenues and expenses from a known period of time. Typically, three to five years of data is considered a healthy period for discovering trends, but when the market is in mid-swing, a shorter time span may be more appropriate.

Growth Strategy
Just two years ago, Internet service became available in Uganda via a high-speed optical service built by China. The Internet Service Provider (ISP) sector is growing slowly, but in time will develop Internet access for more Ugandans, the majority of whom are still subsistence farmers. With this in mind, Tropix has plans for expansion. “It is an underserved market,” says Tausik. “Currently 30 to 35 percent of the population work in non-farming professions,” he notes, “and there is already reliable Internet service available in the capital city of Kampala.”

Tropix’ initial sales to the civil service sector was met by great enthusiasm from the Ugandan government, which provided a sales office for the company at no cost. Now, attention is focused on the country’s doctors and teachers, with a goal of 80 percent computer ownership. Additionally, there are thousands of incoming Ugandan university freshmen each year with no computers, so students will be an important target market as well. To reach the 80 percent goal the company will need to sell a total of 400,000 computers over the next five years. “We forecast the amount we have to sell each year to reach that goal and then make a marketing effort that corresponds to that,” Tausik explains. Part of the marketing effort is mobilizing a group of teachers to go from school to school.

Becoming familiar with breakeven analysis and pro forma forecasting is essential to meeting small business goals. With the knowledge of expenses and sales, a small business can calculate its breakeven point, forecast future cash flow, plan for profit, and create a growth strategy.

Additional Resources

The U.S. Small Business Administration (SBA) provides a free online business planning course and business plan template that includes breakeven analysis, pro forma cash flow and a full list of items to include in a complete business plan. To learn more, follow the links below to other online resources.

A breakeven analysis will show you where your company begins to make a profit.
The breakeven point determines whether expenses, sales, or prices need adjustment.
Cash flow projections help prepare for shortages that can derail a small business.
Forecast realistically by using recent data considered in the context of the current market.
Pro forma calculations have many uses beyond the initial business plan, including planning for strategic growth.

November 2, 2011 Today's Business, , , , , , , , , , , 71 Read more >