Category: Business Finance

Closing the Books | End of Year Record Keeping

Posted on by Paris SBDC

Have you been asking yourself where 2022 went?  In this blog, we’ll talk about year end record keeping and some easy steps to help you close out the year.

It’s time to close out the books!

But what does it mean: “Close the books?” As a small business owner, “The Books” are a record of your revenue, expense and income summary reports. At Paris SBDC, we encourage you to produce these reports once a month – it really helps you know where you are financially. At the end of the year, business owners can close their books by zeroing out their income and expense accounts and moving the numbers to the balance sheet.

It’s all about moving numbers:

Accounting software has become a necessity for any size small business, so we would strongly encourage you to get a program that fits your business needs. While we can’t recommend one program over another, we can tell you several places to look to find accounting software that may meet your needs.  Here are several to consider:

  • Quickbooks: They have a free on-line version, too! Great for any business.
  • Quickbooks Self-Employed: Many free-lance or contract workers like this program
  • QuickBooks Online – See their video and article.
  • Quicken Deluxe: A great over-all software at a reasonable price.
  • Freshbooks: Great for a service-based business.
  • Excel Bookkeeping: If you are already familiar with Excel products, this would be a simple transition.

The best thing about accounting software is with a few simple steps, the program will close your books for you, create your balance sheet, income and loss statements, and prepare documents that you’ll need for taxes.  Suggest you get end of year entries from your CPA before you do the year end closing. Types of accounts to watch for? Suggest reconciling your notes payable and confirm you recorded the principal/interest payments; your CPA likely has depreciation to record; update your inventory; review your accounts, write off bad debts.  These are just to name a few, contact your CPA for feedback; it is best practice to have your books match what you file for your income tax return.

Is closing out the books absolutely necessary?

It really is a necessary part of business to close out the books for the year and keep records for yourself and for your tax return. You will need the information to file taxes and it will make April and tax season far less complicated and intimidating. Depending on the accounting software tool you use, it may also improve the application efficiency and data storage.

How do I close the books?

There are a few simple steps to closing your books that are both easy to do and rewarding when finished. You’ll know exactly how profitable you were, if you can afford employee bonuses, and if you have what you need for tax season.  Here are a few steps for the closing of your books:

  • Send invoices and invoice reminders.
  • Collect past-due invoices and decide which invoices you may need to write off or consider a loss.
  • Gather and analyze financial data:
    • Monthly balance sheet
      • Assets, Liabilities, Equity
    • Profit and loss – Income Statement
      • Revenue, Tax Expense, Operating costs, Cost of goods sold, Depreciation, Net income or loss (EBITA)
    • Cash Flow statement
  • Complete an inventory
  • Organize and log business receipts (don’t just put them in a shoe box, to be sorted by your CPA)
  • Complete bank and credit card reconciliations
  • Pay outstanding invoices
  • Back-up your information and run hard copies of documents you will need (See our blog on keeping paper in a paperless world.)
  • Compile tax documents:
    • Financial statements
    • Bank and credit card statements
    • Petty cash records
    • Invoices and receipts
    • Sales records
    • Payroll records
    • Loan information

Tips to make year-end close easier:

There’s no reason to dread year-end close!  There are several on-line resources that provide printable checklists of what to do and how to complete a year end close for small business. Here are a few more tips:

  • Work on your year-end close just one hour a day (complete it in small pieces)
  • Talk to your CPA about what is needed
  • Get help – delegate filing of receipts and tax records
  • Make inventory fun – have an after-hours counting party
  • Reward yourself when you are finished: Think vacations, time off, or that chocolate bar you’ve been hiding in your desk!

For additional information on how to close your year-end and what records you should keep for your small business, contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

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Safe Harbor for Inventory

Posted on by Paris SBDC

It’s coming up on the end of the year! Do you do inventory every year? Some small businesses do inventory as often as every week, month or quarter. If you aren’t doing inventory at least once a year, you need to!

In one of our past blogs, we talked about taxes as a small business owner and how it is important to find every type of expense that can be taken off of your business’s bottom line so you can pay less in taxes. In this blog we will talk about the Safe Harbor Exception for inventory and how it might apply to your small business.

 

What is Safe Harbor?

There are many definitions and applications for the term “Safe Harbor” but for the purpose of this blog, we will talk about Safe Harbor as an accounting method to simplify your business tax returns. Safe harbor accounting is not intended to avoid taxes, but to minimize what you have to pay within the rules or laws outlined by the IRS.

 

What is Safe Harbor for Inventory?

Remember Aunt Lucy from our earlier blog who knits magical unicorns? Well Aunt Lucy’s business has exploded, and she is now selling her knitted unicorns, along with 50 kinds of massive stuffed jungle animals. Each year, when she counts her inventory of gigantic creatures, she compares it to her sales receipts and (before Safe Harbor) could finally count the sold inventory expense on her business taxes. Before 2018, Aunt Lucy was not allowed to claim a deduction for inventory, until the inventory was sold.

Congress has since then implemented the Tax Cuts and Jobs Act that provided a (potentially) huge tax-write off for small businesses that carry inventory. Aunt Lucy, being the savvy small business owner that she is, decided to take advantage of the new ruling and claim her inventory expense the same year that she purchased the items, instead of when she sold them.

 

How do I change to Safe Harbor Accounting for Inventory?

Changing the method of accounting provided a large tax windfall for Aunt Lucy, and it can for your business too. There are a few rules (of course) to be able to take advantage of Safe Harbor for Inventory:

  • Small businesses with gross receipts under $25 million qualify
  • You (or your accountant) will need to notify the IRS that you are changing to a cash method of inventory. (Form 3115)
  • Each inventory item needs to be under $2500 per unit.
  • If your small business has no requirements to issue GAAP basis financial statements (audit, review, compilation) there may be an opportunity to implement this strategy.

 

What about safe harbor for restaurants?

Safe Harbor rules can also apply to restaurants who make improvements to their property. In the past, if a restaurant remodeled, or updated their “look” the expenses were required to be capitalized and depreciated. With the Safe Harbor rules, small businesses can now count the remodeling as “repairs” and write them off in the same tax year.

 

Talk to your tax expert!

I’m not a CPA, nor do I play one in business blogs! There are a lot of rules and red tape to work through with Safe Harbor, so make sure you talk to an expert to see if your small business is eligible for the deductions, and if it would help you when tax season rolls around.

 

For additional information on Safe Harbor and how it can help your small business save on taxes,  (Check with your accountant) and then feel free to reach out to  us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

How to Find a Great CPA

Posted on by Paris SBDC

If you live in the “real” and “normal” world, you probably can’t imagine income in the millions or billions of dollars – although it would be nice! And sure, it would be great if you had a CPA to manage those millions. However, for some small businesses, it can be an effort just to break even, especially when self-employed or when beginning a new business. You might wonder if you really need a CPA, if you can afford one, or if you can manage the numbers of your business on your own. In this blog we’ll talk about why having a CPA is a necessity for a small business owner, rather you are making millions…or just thousands.

Why do I need a CPA?

Think of hiring a CPA as hiring a member of your team. A CPA does more than prepare your business tax documents and file your return, they can actually save you money. A good CPA can advise you on ways to reduce your tax liability and how to find creative tax breaks. They can also stay up to date on the myriad of tax changes that occur each year and will represent you if you are audited by the IRS.  Business financials can be difficult to understand and having a CPA will add a knowledgeable guide to help with all of the financial aspects of your small business.

CPA’s are most knows for filing quarterly and yearly tax documents, but they can do so much more for you and your small business. Here are some things your CPA can handle:

  • Counsel you on ways to increase profits and decrease expenses
  • Give advice on individual investments or retirement planning
  • Help with bookkeeping, payroll and monthly or quarterly reports
  • Forensic accounting (tracing where money comes and goes)

How do I find a great CPA?

First, I would suggest checking your local chamber of commerce business directory.  Our local chambers serving our PJC areas are vested in our business community and a great resource.  Your local SBDC will give you a resource list of local CPA’s.

Next, remember is not every CPA is alike. CPA’s specialize in different industries. Some CPA’s only do industrial management, while others take care of financial matters related to government entities or even non-profit organizations. Take into consideration the type of CPA you are looking for: one who specializes in your small business-type. Here is a list of things to do when finding your own great CPA:

  • Determine their specialty
  • Look up their license: All CPA’s are required to be licensed.
  • Verity their tax ID number: The IRS requires CPAs who prepare taxes to register with the IRS and have a Preparer Tax Identification Number (PTIN). To verify that a CPA is registered with a PTIN, simply search the IRS Return Preparer Office Directory. 
  • Ask about their experience: Have they filed electronically? Can they manage spreadsheets and different types of software?
  • Will they sign your tax returns? Consider it a red flag if they won’t sign your returns as the preparer.
  • Check their Yelp and Google reviews.
  • Check your local Better Business Bureau
  • Ask your friends and business associates: They may have a CPA that they love and trust
  • Determine their fees: Are they in line with other CPAs? Do they have a fee schedule they share with prospective clients?
  • Conduct your own interview: Make an appointment and sit down with your prospective CPA. If you can ask questions and get answers, while feeling comfortable and confident in their knowledge (and the way they respond to your needs) that will go a long way in helping you determine the best CPA for your small business.

What should a CPA cost?

CPA’s have different costs for different tasks and their fees can vary. Below is an example (only) of “normal” CPA fees in the state of Texas. Please keep in mind that the more specialize your business, the bigger range of fees. In general, the average prices in Texas are:

  • Tax preparation
    • $250 for Form 1040 without itemized deductions.
    • $300 – $500 for an itemized Form 1040 with Schedule A and C.
    • $900 for Form 1120S – S corporation
  • Hourly rate: *Be careful of hourly fees and get a maximum amount ahead of time.
    • $50+ average
  • Quarterly tax documents
    • $50 – $200, depending on complexity

How to save money on a CPA:

CPA’s are necessary for things like tax documentation and filing returns, however you might ask your CPA if they have accountants on hand within their firm. An accountant can often do bookkeeping and prepare financial statements at a lower cost than a CPA.

For additional information how to find a great CPA, or on how to maximize your small business dollar by using an accountant along with a CPA, please contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

Year End Inventory | How to do Your Store Inventory Efficiently

Posted on by Paris SBDC

In 1996 Bob and Billy decided to start a business with the concept of importing unique accessories from Europe and combining them with high-end and often difficult to acquire, home furnishings, specifically furniture with a quick delivery goal of less than two weeks. At the time, furniture production took an average of twelve to fourteen weeks. To counter this roadblock, they decided to purchase specific items that were readily available, off the floor from wholesale sources, as well as take on consigned items from local designers. At trade shows in Paris, London, Italy, and New York, they sourced accessories. They then invested thousands of dollars, counting on that inventory to arrive within six to eight months. Next, they leased a store in a high-profile shopping district and opened their doors with the furniture and only a few of the earliest arriving accessories.

High rent is a ticking bomb when there are no sales to support a business. With unexpected delays pushing the bulk of costly accessories well into December, the company had limited sales. By then, the window for desperately needed revenue had ended and the company struggled to survive.

What is inventory? 

Selling goods or inventory is what most companies rely on to generate revenue. Inventory is not just the product sold but the components used in making the goods, which can even include packaging. Three basic components of inventory include:

  • Raw materials including all items necessary to produce the finished goods.
  • Work in progress; the raw materials on the assembly line during the production process.
  • Finished goods or items completed and ready for sale

Inventory is generally a company’s greatest asset but spending too much to acquire and hold it can be detrimental.

 

At the time Bob and Billy started their business a well-known retailer of home furnishings had extensively studied the concept of delivering custom sofas with a choice of three different sizes and the option of ten different fabrics. It would have cost over a trillion dollars, they estimated, to stock readily available sofas in all sizes and every color for their fourteen stores.

 

Why do I need to count my inventory?

Inventory management is another key to a successful business. Holding a large amount of inventory is generally not good for companies, especially if ongoing production costs and storage is not offset by steady sales. There are many reasons to count inventory:

  • Track business performance by monitoring the speed of inventory turnover. A fast turnover in sales and delivery can be a great advantage over competitors.
  • Lower holding costs by reducing slow selling items or goods with obsoleting risks. This can make the business more efficient and profitable. Think of holding onto aging inventory like that special holiday cookie Dorris in R&D created on a whim last November. Nobody wants to eat a six-month-old chocolate chip cookie with dried cranberries and snow-white sprinkles come June.
  • Avoid taxes: While inventory is considered an asset, it may become a liability if held for too long (consult a professional tax advisor) and in some cases may be taxed.
  • Loss prevention: When raw materials don’t meet expectations at the finished goods stage because bags of chocolate chips go missing from the assembly line, you can thank inventory control for catching the problem before a supply issue arises with your buyers.

 

What is the difference between current and long-term assets?

The economic value of inventory is generally measured in its short-term value over a one-year period. The exception being large, manufactured items like airplanes, or heavy construction equipment that often require finding a buyer.

As your company acquires inventory its value goes up. When inventory converts to cash from sales the balance goes down. Depreciating inventory at the end of the year works similarly.

Taking stock at the end of the year of old, damaged or the loss of finished goods, can be depreciated on your balance sheet to reflect what remains. The remaining inventory may convert to long-term assets.

*Always consider consulting a tax professional for possible liabilities as depreciation rules don’t apply the same for inventory as other assets.

 

My employees hate doing inventory, how can I make this easier for everyone? 

In an earlier blog on automation, integrating inventory through an automation process is key to making inventory control easier on employees. Do your research and find a system that is efficient, easy to use and cost effective.

Establish step by step monitoring systems from ordering to receiving raw goods, during assembly and production, to when the final goods ship. This will make the process easier. However, relying on the input of information into a computerized system is not to be taken for granted. A checks-and-balance monitoring of the process along the way requires human guidance and often physical labor. When it comes time for the year-end physical inventory count, make an event out if it. Close the doors, provide food, and have a celebration at the end. After all, discovering there is only one box left of Dorris’s crazy cookie concoction is something worth celebrating.

 

For additional information on year-end inventory and how to do your inventory efficiently (and painlessly) please contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

 

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Money Smart for Small Business

Posted on by admin

Money Smart for Small Business Training August 2 to September 27th, 2022 Tuesdays @ Noon – 1pm

Click to Register for the zoom link 

A Financial Education Program by the FDIC and SBA.   Benefits:

  • Build a business and create wealth
  • Understand skills required in a start-up
  • Learn skills in business management and operations

Download participant guide to use each week.  We will not be giving a test during this online class, however the pretest in each booklet will help you assess your knowledge and guide questions you may want to address during the weekly session.  See the materials per week:

Week 1:   Is Owning A Business A Good Fit For You?

Week 2: 0809_SB_Planning_for_a_Healthy_Business_PG

Week 3: 0816_SB_Financial_Management_PG

  • Jim Struwe, SBDC Advisor
  • Jennifer Johnston, SBDC Director

Week 4:  0823_SB_Managing_Cash_Flow_PG

Cash Flow Worksheet using Wired Cup example – practice changes to improve the cash flow

  • Jennifer Johnston, SBDC Director

Week 5:  0830_SB_Building_Credit_PG     Extra Resource: FTC Guide on Credit Repair

  • Martin Orrostieta, SBDC Advisor
  • Lender

Week 6:  Happy Labor Day, we will not meet on 9/6/22.

Week 7: 0913_SB_Insurance_PG  we will continue with the banking discussion as well as addressing insurance/risk management.

Week 8: 0920_SB_Tax_Planning_and_Reporting_PG

Week 9: 0927 SB_Selling_Your_Business_and_Succession_Planning_PG

 

Please provide feedback on the course with the SBA-Training-Evaluation-Form  upload to Click here  or email: Jennifer Johnston, jjohnston@parisjc.edu

If you have any questions, contact us at 903.782.0224

#ParisTX #GreenvilleTX  #SulphurSpringsTX #CooperTX #ClarksvilleTX

Automation for Small Business

Posted on by Paris SBDC

Think of all the daily tasks your business requires to function properly. How many of these tasks are done manually on spreadsheets, by entering data into the computer or through generating individual responses to customers? These repetitive duties can eat up time and bog down a business.

Imagine implementing an app and with the push of a button all your tasks were completed in little time with less effort. Not to mention, the app followed up, scheduled the next marketing email, and tracked useful data that resulted in sales. This is all possible.

Apps have become a necessary part to running an efficient business. These are not finger foods served at cocktails parties, but computer programs built for automating daily tasks. If your small business relies on you to do much of the work at the very least you should consider automation for bookkeeping, a payroll tax and sales tax system, email marketing, and meeting scheduling with automated follow up reminders.

 

What is automation for small businesses?

Automation is the implementation of a computer application or subscription to a service that streamlines workflow and accomplishes tasks that a person would manually have to do. The days of switchboard operators asking how they can direct your call are a simple example of what automation has become. Now it’s an electronic voice giving you a list of choices and numbers to push for service.

 

Does automating really save money?

The goal of automating is to simplify your business. Through automation, a company can reduce effort, time and the costs required to do manual tasks. By freeing up staff, more time can be spent on primary goals that move the company forward. Not only does automation save money it can drive up revenue, complete repetitive tasks faster, at higher quality and without human error. Automating can help with the following:

  • Reduce operating costs by saving time and labor costs
  • Reduce factory lead times with systems that keep production on schedule
  • Improve shipping times and costs
  • Increase returns on investment (ROI) rates by reducing operating costs. Efficiencies in labor expenses means less overhead.
  • Create the ability to compete globally
  • Streamline communications. Plan meetings, set task reminders, follow ups, and work schedules
  • Reduce the need for accounting personnel

 

What processes or things should I automate?

In the Sci fi thriller Independence Day, a giant green-eyed creature sat in the control room of a spacecraft and pushed a single button to launch thousands of ships to invade earth. You don’t have to be an alien creature to instantly launch thousands of online marketing campaigns across all social media platforms. Nor does the result have to be scary. There’s an app for that and you can even add a smiley face to your message if you like. Check out these aps for email marketing:

Take time and review all the manual tasks that your company performs. Look for areas where you can make changes. Consider the following:

  • Bookkeeping especially if you are still doing this manually on a spreadsheet
  • A payroll and accounting app like QuickBooks or a payroll service company with online automation that sends your data for them to process.
  • Invoicing and collections. Keep your cash flow moving with automatic payment due notices that allow customers to pay via credit card, PayPal, Zelle or Venmo.
  • Sales tax collection and payment, especially if your business sells in multiple states. Check out taxjar.com
  • Social media and email marketing apps with a scheduling tool that can launch campaigns across all platforms at once
  • Drop shipping and warehousing automation for manufacturers or print on demand companies
  • Sales and order processing apps or outsource to companies with data and processing services
  • Task management system with follow up reminders and scheduling. This may also include an intercompany communication system

As with any suggestion, do your research and as always do what is best for your company.

 

Top automation tools for businesses:

If you are looking for some proven, great automation tools for your small business, we’ve compiled a list.

*Of course, we don’t endorse or recommend which apps and which automations to use for your business, the following is only intended to get you started and is in no way a complete list:

  • Zapier can automate your work across 5,000 + apps
  • IFTTT is like Zapier. Use this to create automations between apps so you don’t have to bounce around
  • Activecampain for advance email marketing
  •  Hootsuite or buffer are social media essentials
  • Calendly A simple automation tool that cuts out back-and-forth emails for scheduling meetings, phone calls and other appointments with email links to a calendar system (we use that here, at Paris SBDC)
  • Xero As your business grows your accounting needs increase. Xero can minimize the workload otherwise handled by an accounting department
  • Constant Contact Great for emails, newsletters and keeping customers up-to-date

 

 

Are you considering switching a few of your small business tasks to be automated? We can help you evaluate and decide the best processes and automations to have. Contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

Are You Ready for the Shark Tank? Pitching Your Business to Investors

Posted on by Paris SBDC

** Look at the FREE information we have for you online here with Paris SBDC: Finding and attracting investors

 

Why would you need investors in your small business?

An investor can make a difference that often leads to success for a small business or an inventor looking to promote a distinctive idea or product.

Imagine having a product or unique business that is a Rockstar in the community and you are finding it nearly impossible to keep up with the demand for what you do. The very thought of adding more locations might sound like a slow death sentence by overworking. An investor with the right connections could be the answer to growing your company without increasing your workload. Perhaps that hot sauce your friends and neighbors have promised their first born in exchange for the recipe needs a steady money supply to become a commercial product. This too could happen with the right investor.

For Steve Ells, founder of Chipotle restaurants, family and friends were the investors he sourced the eighty-five thousand dollars he used to open his Mexican grill. While taco shops are nothing new, Chipotle’s fresh grill inspiration came from street vendors in San Francisco. Even today new and interesting taco shops are consistently opening. However, it was Ells’ concept of promoting naturally grown foods that saw it generate seven plus billion dollars of revenue in 2021. That is a lot of tacos and burritos.

 

How do you find investors?

There are many different types of investors for a small business owner to consider. Above all, it comes down to research and finding the right fit for your company. Here are a few options.

-Crowd funding.

Somewhat like a bake sale to help a sick or needy child, this type of funding can also be sophisticated. A concept that relies on a large group of small investors, often the company provides incentives or perks in return. In equity crowdfunding, private company securities are offered to a group of several investors in return for financial backing.

-Bootstrapping.

Bootstrapping, a method of finance by reinvesting your company’s revenue, is how Mrs. Field’s grew her cookie business in the nineteen-seventies. With the concept of selling freshly baked homestyle cookies, they opened several stores and eventually started franchising. Along the way, they purchased other companies offering franchises for those stores as well. Relying on revenue from your company may not be the best for long-term growth. However, investors tend to be keen on businesses willing to put up their own money as part of any potential investment.

-Friends and family.

Those who know your business as well as you do, are often friends or family members. While this may be less complicated than sourcing traditional investors it can come with high expectations that may jeopardize the relationship. If you should decide this is the only method of fundraising, treat the potential investors as you would any other professional. Provide a portfolio and a business outline. Define the when, where and how’s of returns on the investment. Make certain your relationship is sold beforehand, otherwise this may not end well.

-Angel investors.

Angel investors are not from heaven. They are wealthy investors often in your community that are willing to put money into a new business in exchange for equity. Network close to home to find willing angel investors. Go to local startup events, chamber of commerce meetings, even fundraisers. Also, check the internet for places like these:

-Venture Capital.

Venture capital is a private equity form of investment, often sourced during later stages of a grown business startup. Venture capital firms often look for massive growth potential in a company. Think Chipotle Mexican grill after the friends and family investment. Later as the company grew, it was necessary to secure venture capital to finance further expansion across the country. Do your research. Connect with Venture capital companies on LinkedIn or attend a pitch event.

 

What are investors looking for? 

While not all investors have the same end goal, a good return is often a common interest. Otherwise, investors often look for the following.

  • A company or industry they are familiar with
  • Solid data and a strong business plan
  • A management team they can get behind and believe in
  • A unique concept or idea with a large market and competitive advantage
  • A growing company with momentum and solid footing in the marketplace
  • An idea that will generate cash flow with a clear investment strategy

 

Pitching your business to investors

 A business pitch is a persuasive argument to convince a person or investors to invest into your business. Pitches can be as short as twenty second or up to an hour so long as you keep the investors interested. A presentation should include:

  • Correct information including the value of your proposition
  • Specific benefits of your unique product or idea
  • What advantages you have over your competitors
  • Target market, demographics and why customers should choose your product
  • Sales strategies and revenue projections
  • Team members
  • Exit strategy
  • Amount of funding needed

A great business pitch tells a story. Much like the stories of Steve Ells and Mrs. Field found earlier in this blog, these are things easily remembered. In telling your story, draw upon your own experience tying in how your business resolved a relevant problem or solved a need.

Be sure to provide contact information. Should you pitch to an audience, this will help them find you.

Remember to plan for various situations. Slow down, be confident and practice, practice, practice, so that your pitch sounds professional. Be respectful and prepare for difficult questions. Often investors are looking for a resolution to a problem that will make them money.

Be sure to follow up afterward with a brief email or phone call that reminds them of you and your product. Also ask for feedback and correct any issues for any potential future pitches.

 

Do you own a small business and would like additional investors? We can give you the resources you’ll need to pitch your business to investors. Please contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

 

How to Manage Cash Flow

Posted on by Paris SBDC

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.

What I Wish I’d Known Before Starting a Small Business

Posted on by Paris SBDC

Richard Armour, a humorist from California, is said to have coined the phrase: “Most people’s hindsight is 20-20.” It comes from the way people describe good vision or seeing things clearly.  In today’s blog, we’ll talk about a few things many successful small business owners wish they had known, before starting a small business.

 

Thoroughly investigate the type of business you want to own:

You might think that there is a giant need for the type of business you want to start, that everyone would love to own one of your widgets or hand-knitted stuffed animals. But is this a reality? Ask around, try a few test-sales, investigate similar companies.

Investigate the location of where you want to put your small business. If, for instance you want to start a restaurant selling gourmet tacos, but there are 2 other taco restaurants on the same street…is it the right place for your small business?  What about accessibility? Can people get to your business easily? Will you be able to offer delivery, or curb-side options?

Many entrepreneurs wish they had investigated the type of business, location, and overall effort it would take, before they began their small business.

 

Spend the time and money to set up your business correctly:

It’s important to get all of the legal and financial structures in place before you open a small business. Spend the time and money to get everything set up correctly the first time. Dot your legal “I’s” and cross your financial “t’s” with the best experts for your small business. Purchase the right equipment and have in place the experts you will need.

 

Understand that great help will be hard to find and keep:

It’s not just a cliché that “good help is hard to find” it really is difficult for any business. Prepare for the fact that it will be difficult to hire and keep good people. Some industries have higher turnover, others aren’t able to offer a wage high enough to motivate employees to stay. Have a plan for the times you can’t get help; maybe you have family you can bring in, close friends or even eager, happy customers. Be ready to be flexible with your hiring strategy to make it work.

 

Prepare for Stress:

Many entrepreneurs have reported that they knew starting a small business would be stressful, but they under-estimated just how stressful things could get. It helps to keep reminding yourself that the most stressful days are temporary, that in the long run, the work and frustrations will be worth it.  Pre-plan time to get away from your business. Work in vacations or a day off a week. Find a mentor to talk to, or even a business counselor to keep you mentally on track to run your business.

Other entrepreneurs told us it helped to keep a part-time job while they were setting up their new business. Part time work helped them meet financial obligations of the new business and gave them peace-of-mind while getting started.

 

Work smarter not harder:

Yes, another cliché, but many successful business owners tell us that working themselves into burnout did nothing to improve their small business. As an entrepreneur, remember to delegate as much as you possibly can. Get automated processes for your business which could include computerizing the order process, hiring a company to do your payroll, or purchasing machines to do tasks.

 

Take time out for education:

Simple things like spending an hour a week to further your business knowledge can go a long way in making you succeed. Free programs – like those we have available at Paris SBDC – are extremely beneficial and take very little time. In fact, check out our calendar HERE to see some of the programs and education available right now!

 

Be prepared to adapt:

You may have five or six planned product lines, but only two sell regularly. Be prepared to adapt your business to cater to those bigger sales. Maybe one of the special types of yarn that you use for your stuffed unicorn is no longer available – be prepared to substitute and adjust pricing as necessary. Have a plan for adapting to crazy situations – like a pandemic.

 

It will get lonely:

This one surprised us – but nearly every entrepreneur and small business owner surveyed last year admitted that building a business is a lonely endeavor. Unlike working for a company, where you have co-workers and a sense of community, suddenly every decision and responsibility falls on your shoulders. For some, that can be a heavy, lonesome burden to carry. Here are some tips to help combat that loneliness:

  • Consider a co-owner or partner.
  • Create a safety net of people: maybe your family, spouse or good friends.
  • Don’t hesitate to get outside help, advice or counseling.
  • Network to talk to other entrepreneurs. Sometimes it just helps to hear that others are having the same struggles you are having.
  • Take some “me time” away from the business and with people you enjoy.

 

It is incredibly rewarding:

Making your own business successful is incredibly rewarding. You will have the flexibility, independence and eventually, monetary rewards you’ve been hoping for. Watching your business grow and do well gives you a sense of satisfaction and fulfillment. Over half of the entrepreneurs surveyed by Manta said the top reward of owning a company is having the freedom to control your own destiny.

 

For additional information on owning your own small business and for ideas of how to start a small business, please contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.

 

Money Smarts

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Test your Money Smarts in this entertaining way for personal growth!  Earn certificates of progress in this program by the FDIC.

Scan the QR Code for 14 Self- Paced Learning Games!

Money Smart QR Code

Learn about everyday Financial Topics, such as borrowing basics and credit scores.

Get Ready to Borrow Money  – Have you heard about the 5 C’s lenders look for Capacity, Capital, Credit, Character, Collateral

How to Calculate Your Net Worth 

 

Watch our Training Calendar for Money Smarts for Business 2022!

Personal credit impacts business credit. For a start-up company, credit worthiness hasn’t been established; lenders will look at the credit scores of the business owners.

 

Life’s unexpected events, the pandemic, not only impact personal but household financial goals. Manage your credit scores Free Credit Reports and  Credit-Repair tools.