How to Manage Cash Flow | Paris SBDC

How to Manage Cash Flow

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CASH FLOW! 

It’s not a giant surprise that one of the top 10 search topics for small business on Google this year is “How to Manage Cash Flow.” Every small business, and even big-business owner knows that cash is king and managing it properly is the key to turning a profit and being successful.

In today’s blog we’ll talk about cash flow and give you some tips to manage your own cashflow.

 

What is Cash Flow?

Cash flow is the movement of money in and out of a small business. Cash received is the inflow, where money spent is the outflow. A positive cash flow is when you have more money coming in than you have going out.

Cash flow is important, because it shows the “health” of a business overtime. A positive cash flow can help secure loans with lower interest rates, attract investors, and sustain your business overtime.

 

Cash Flow Difficulty for Small Business:

A recent study from Intuit (Quick Books) discovered that 61% of small businesses around the world struggle with cash flow. As many as one-third of surveyed small businesses said they were unable to pay financial obligations such as vendors, loans, payroll or themselves because of cash flow issues. Negative cash flow is also the main reason why 20% of small businesses fail in the first year.

 

Tips for achieving and maintaining a positive cash flow:

Let’s talk about things you can do right now to improve and maintain a positive cash flow in your small business:

1 – Send Invoices!

We are told that one of the most difficult things for small business owners and entrepreneurs to do is to ask for money. When it comes to cash flow, “put on your big boy/girl pants” and do it!  Don’t forget to send those reminders early and often, too.

If you are struggling with cash flow, you may want to send invoices as they occur, instead of on a 30-day billing cycle. Set your terms to net-15 days instead of 30-days.

2 – Collect Receivables:

Just sending invoices isn’t usually enough to get money coming in the door. Don’t be afraid to call to make sure the payments are being processed. Other receivables strategies could include:

  • Request a deposit up front for large orders
  • Offer discounts for early payment
  • Consider online invoicing with payment options online
  • Offer deep discounts on items that are not moving
  • Offer automatic transfer and deposits
  • Establish a credit policy and stick to it
  • Move slow or non-payors to a cash-up-front type of sales only

 

3 – Lease Equipment, Instead of Buying:

Yes, it is often cheaper (over the long term) to buy instead of lease. However, leasing gives you several cash-flow advantages:

  • Lessens short-term financial burden with the use of a smaller “chunk” of your capital budget.
  • You can keep your equipment up-to-date easier.
  • Repair costs are usually the responsibility of the Lessor.
  • Equipment leases often qualify for tax breaks.

 

4 – Adjust Your Inventory When Necessary:

Check on the items that are not moving or being sold in a timely manner.  Selling them at a discount may not only get it out of your inventory but may give you immediate cash flow. Spend money instead on those items that are selling.

 

5 – Develop a Strategy for Paying Bills:

Spread out your payments and try to extend your payables as long as possible. This can be tricky – you don’t want to incur late fees or earn a bad reputation as a “non-payor” so make sure you pay your obligations – but maybe consider paying weekly or bi-monthly, instead of all on the 1st of the month which can deplete your cashflow in one day.

Don’t forget to negotiate payments with your suppliers. Ask ahead of time your supplier’s payment terms and if possible, negotiate interest-free scenarios with longer pay-back terms. It will also help to time these payments with your actual cash flow.

 

6 – Establish Your Business Credit Before You Need It:

It’s a lot easier to get money when you don’t need it. If your business is running smoothly, open a line of credit so you’ll have a fallback if cashflow gets short. Often interest rates are lower and banks are more willing to lend money or lines of credit while your cashflows are positive. This type of strategy is particularly helpful for those businesses that tend to be seasonal.

 

7 – Consistently Evaluate Your Business Structure:

Especially now, as a recession looms, it is important to look at your business strategy and be willing to change or adapt. Different areas of your business operations can be updated for efficiency such as shipping costs, use of middlemen, extra employees, overtime and even stocking up on materials before a price increase hits.

Often outsourcing or hiring freelancers can provide cashflow benefits by allowing you to get the job done and avoid paying salaries, benefits and insurance.

 

8 – Take a Look at What You Are Spending Money On:

Make sure you are not treating your line of credit like “regular” income. Lines of credit have expenses such as fees and interest. Take a hard look at your interest rates and make sure you are making progress with your loans or lines of credit and not just paying interest.

Check other expenditures such as:

  • Insurance rates (evaluate and “shop” annually)
  • Utility rates
  • Terms of payment to and from suppliers
  • Overtime
  • Number of employees
  • Cost of goods (Is it increasing and are you changing your price to reflect the costs?)
  • Petty cash expenditures

 

9 – Take Advantage of Technology:

The right technology and the right business structure can make a huge difference when it comes to cash flow. Technology can streamline your business processes and increase efficiency; and yes, you can even use it to project cash flow!

A great example of taking advantage of technology in a small business can be seen with online retailers who use automated systems to bill and collect, send shipping and tracking information, and even a thank-you for their purchase. These simple systems can cut down on having to pay your lazy nephew, who charges too much and messes up every order. Instead, it’s done automatically.

 

 

For additional information on how to get your cash flow going in a positive direction, or on the best way of increasing your cash flow, please contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

Blogging for Small Business

Do I need a Blog for my Small Business?

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What is a blog?

I’m sure you’ve heard the term “Blog” and you’ve probably assumed correctly that a Blog is 1- found on the web or internet; 2 – a type of personal or business diary; and/or 3 – Usually geared to teach or sell something.  You would be correct on all accounts.

The very first “Blog” began as a descriptive term for logging onto the internet, or the web. In 1997, a “computer nerd” by the name of Jorn Barger from Ohio, came up with the term ‘weblog’ to describe what he was doing on his website: Robot Wisdom. He explained he was “logging the web” as he searched or browsed the Internet, creating a ‘web log,’ with what he found – which was shortened to ‘weblog.’ In 1999 ‘web log’ was further shortened by programmer Peter Merholz when he decided to pronounce weblog as ‘wee-blog,’ or ‘blog’ for short. The term blog was then popularized by the duo who created Blogger (one of the first and most popular Blog websites of the early 2000’s.)

 

Do I need to have a blog in my small business?

The short answer is YES!

Blogs, in their traditional form have evolved to become much more than just a diary of events or web pages looked at and things learned. Today’s Blogs have become major marketing opportunities and offer the following powerful business tools serving to:

  • Inspire sales which increases revenue
  • Improve conversion rates
  • Foster relationships between your business and customers
  • Promote brand awareness
  • Increase your ranking on search engines
  • Educate your audience
  • Grow your overall business

 

What type of blog should I have?

Blogging has expanded to include things like podcasts (a series of spoken word, audio episodes, all focused on a particular topic or theme, like cooking or true crime), vlogging (video blogging) and micro-blogging (done on sites like Tumblr, Ghost or Webflow that are shorter, more personal blogs.) As far as the type of blog you should have for your small business, you need to ask yourself the following:

  • What do I want my blog to do?
    • Are you selling something?
    • Is your blog purely for sharing information?
    • Do you want to get new customers from your blog?
    • Is your blog meant to be educational?

The type of blog you have, depends on the type of business you own and the goals you want to achieve from your blog.

The blog you are reading, for instance, is used (primarily) to help small businesses in our area. Small business is the backbone of not only our service area, but of America. We aren’t looking to “sell” a product through our blog, but to give useful information to help you succeed.

 

What do I say in a blog and how do I start one?

Starting a blog sounds easy (for some business owners). Others struggle to come up with topics or information they want to share. The most popular small business blogs are fairly short (500-850 words) and talk about (you guessed it…) the business! Here are some tips to make your small business blog successful:

  • Have a Plan! Treat your blog like you treat your marketing materials; with a plan of how and when you want to “launch” information.
  • Be consistent with your blog posting: Make a calendar! Pick a day and time and stick with it. You don’t need to blog every week, maybe every-other week or once a month is plenty – maybe you are in an industry where daily blogs make sense. Whichever you do, do it consistently.
  • Lighten up! If anyone wants to read or see something that brings them down, they only need to turn on the news. Keep your blogs light, stick to the facts and avoid political, personal or religious extremes. (Unless of course, your business IS one of these extremes.)
  • Switch it up: You don’t always have to talk about your business. Some of the most popular blogs have short videos or recipes thrown into the mix. Don’t be afraid to toss in something unusual.

 

I don’t sell anything. Do I really need a blog?

Yes, you still need a blog! And if you own a small business, of course you “sell” things.  You may not sell widgets, yard art or crochet unicorns, but if you are in business, you ARE selling something. It might be more service related, maybe your business is consulting or reporting. An extremely popular fashion blogger named Gabi Gregg (Young, Fat and Fabulous Blog) sells nothing, but has become so popular with her blog that promotes body positivity and plus-size women’s clothing, that companies are clamoring to be on her blog (and pay for the privilege) just to get reviewed or even mentioned. She’s done blogs in Glamour magazine, MTV Online, Essence, and Black Enterprise.

Incidentally…this blogger’s “non-business” (that doesn’t “sell” anything) makes over 6-figures a year with her personal net-worth of over a million dollars!

 

I don’t have time to write and maintain a blog!

This may be very true for a lot of small business owners when you already have too many demands on your time. Here are some ideas to help with getting your blog writing done:

  • Hire someone: There are many different blog writers out there who can write the blogs for you. Many bloggers enjoy business blogs, or even those unique niche-market blogs.
  • Have your employees “take turns” writing blogs: You may even find an employee who really loves it and can dedicate the time to doing it.
  • Ask around: Look at the blogs of your business associates and/or competitors. Ask questions and find out who does their blogging.
  • Look at using college interns: College age students make great bloggers. They already understand the internet and what people are looking for, they are also less expensive than professional bloggers. (Just be careful to edit anything a blogger writes before it goes on your site!)

 

 For additional information on starting or maintaining a blog for your small business – we may not be able to bring your blog 6-figures, but we CAN get you started!  Please contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

 

What business to franchise

What is the Best Business to Franchise

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What is a Franchise? 

**Check out our Introduction to Franchising for young entrepreneurs in our learning center! 

 

A franchise is like a temporary lease or contract with an established company for the rights to sell the franchisor’s goods or services using their established business model and trademark.

A franchisor is a business that grants the license or agreement to franchisees (investor).

Starting any business can be a risk. An estimate of twenty percent of new businesses will not survive beyond the first year. Fifty percent make it to five years and thirty percent make it ten years or more. A possible way to minimize the risk of starting a new business is to consider a franchise agreement with a company that already has a well-established name brand and business strategy to follow.

In the nineteen-eighties I worked at a McDonald’s restaurant.  As an entrepreneurial spirited teenager, I imagined one day owning a franchise of my own. At the time, it cost the owner of the restaurant one-hundred thousand dollars to get on a six-year waiting list for a franchise contract. While I was babysitting a sizzling vat of French fries, I thought back to when I was eight years old and bought a pair of hamsters with grand plans to breed them and make money. If I sold the babies for a dollar each and used some of the money to buy more breeding pairs, I’d make thousands of dollars, I had calculated, as surely every kid in school needed a soft, fuzzy hamster. Thank goodness for a mother with a low tolerance for smelly, short-tailed mice.

 

How does a franchise work?

There are many costs involved in owning a franchise. Firstly, you must pay the franchisor a franchise fee. This allows you the right to sell goods and services under the franchisor’s brand name for a limited time with support for a specified number of years. These said contracts or agreements do not give the investor (franchisee) any rights or ownership of the franchising company.

Contracts between the franchisor and franchisee can vary and are complex. Depending on how the contracts are written they can last five years and up to thirty years often with heavy penalties for premature termination. Support from the franchisee may include helping you find a suitable location for the business, training, operation manuals, newsletters, a website, access to workshops, and seminars.

Besides the initial startup fee there is an annual licensing fee and ongoing royalties paid to the franchisor. Depending upon the industry, royalties can vary from 4.6% to 12.5%.

A good thing to know is the Federal Trade Commission’s (FTC) has set rules for franchisors and require that they must give you a list of documents to evaluate any potential investment opportunity.  https://www.ftc.gov/legal-library/browse/rules/franchise-rule

 

What are the risks to owning a franchise?

Owning the rights to sell a brand name or goods is no guarantee of success. There are risks. The financial costs alone can be overwhelming and may include:

  • Grand opening or other initial business promotions
  • Business and operating licenses, food handlers permit and ongoing inspections for certain businesses.
  • Product or service supply costs like foods for a restaurant or production line clothing for a retailer.
  • Real estate and leasehold improvements to house the business.
  • Required equipment such as a computer system, machinery, security systems, visual displays may be required and leased from the franchisor.
  • While the franchisor may provide this, it may not be free and can include travel expenses to seminars or training facilities.
  • Business insurance
  • Compliance with local ordinances, such as zoning, waste removal, fire, and other safety codes
  • Employee salaries
  • Advertising cost locally and or a contribution requirement for national campaigns.

Other risks may include:

  • Limited sales territory
  • Restrictions on goods or services the franchisee can sell or supplier they must buy from
  • Contract terminations and renewal
  • Competition
  • Demand for the product
  • Internet limits on services, areas, and customer solicitation

Ultimately, like any company, success relies heavily on the investor having the skills and business savvy to make it all work.

 

What are the benefits of owning a franchise?

Owning a franchise can bring instant name recognition that a new upstart business may take years to establish. Take McDonald’s for example, in the right location the reward can be worth the expense. Not only is the name well established, but they also have their own university to help train and educate the franchisee about how to run a successful business. With a time-tested brand, surviving a downturn in the economy can be less risky. Established products and methods of selling can help cut the learning curve of a new business venture.

 

Which type of franchises make the most money?

 It’s no surprise that I have yet to see a single hamster factory franchise make the list, but according to Hubspot the top franchises to buy in 2021 were:

  1. McDonalds
  2. 7-Eleven
  3. Dunkin’ Doughnuts
  4. The UPS Store
  5. Popeyes
  6. Sonic Drive-In
  7. Great Clips
  8. Taco Bell
  9. Kumon Math and Reading Centers
  10. Sports Clips

 

While evaluating a business opportunity, knowing if the investment is worth the risk, is paramount. Consider the following:

  • How many franchise locations have opened in recent years?
  • Check out the success rate. What percentage of the newest franchises are still open?
  • Factor in real estate costs. A successful business franchise in one location may not be profitable if you are paying a higher lease or property expenses in a different area, or if traffic is limited.
  • Be sure to read the financial disclosure the FTC requires that franchisors must provide to potential investors. This as well as more information can be found at the FTC Business Guidance Resource Center.

 

 

If you are interested in starting a franchise or if you have questions about what type of franchise is good for your skill set, we can help!  Please contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.