Red light as Kapitus discusses the warning signs of an upcoming recession.

Recession Indicators Are Here – Should You Borrow for Your Small Business Now?

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It’s time to start preparing. The stock market’s most well-known recession indicator—the inverted yield-curve—indicates there’s trouble ahead. This is especially the case for small businesses that are trying to get financing before a recession hits.

That’s because an inverted yield curve typically implies, as CNN Business’ Julia Chatterley states, investors are getting paid better to lend money for a shorter period of time (a two-year Treasury note) than a longer period of time (such as the 10-year Treasury), even though the opposite is usually true since a longer-term investment typically are riskier and pay out better returns.

Right now the opposite is happening. Spreads are between the 10-year Treasury yield, which is typically a benchmark, trading under it’s two-year Treasury counterpart. That’s created a 30-year rate under 2 percent. Its lowest level since 2007.

For many in the investing sector, as well as businesses across the U.S., that means major warning bells sounding an alarm that a recession is pending.

To better prepare, here’s what Howard A. Tullman, executive director of Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship at Illinois Institute of Technology in Chicago, suggests doing when it comes to preparing your small business and financing before a recession hits.

 

Consider Increasing Your Credit Line.

Many small businesses were hindered by their inability to secure bank credit before the financial crisis of 2008. In the years following the recovery, access to credit and lending to small business lagged behind, according to the National Federation of Independent Businesses.

A survey done by The Federal Reserve of Senior Loan Officers found credit standards for small-business borrowers increasingly squeezed through October 2008.

That’s why having the right access to capital is essential for the long-term survival of any business. As is maintaining the proper amount of funding and cash flow.

It’s important to be strategic about it.

While some business owners many borrow to increase their cash flow, Tullman says don’t borrow in order to finance speculative expansions or new undertakings in this type of economy.

Instead, be smarter, more prudent about what you do.

Tullman recommends small business owners rely on “real cash” that is available; but also consider increasing their credit line, Tullman says, “especially if there’s no cost in doing so.”

 

Slow Down Payments as Part of Cash Flow Plan

Slowing down payments isn’t something most business owners like to do. But sometimes being more strategic with how you manage your cash flow can make a big difference.

It’s important not to mismanage strategic relationships that can be key, especially during a recession.

“If you can defer or slow down your outbound cash payments on debts you owe without jeopardizing the long-term relationship, then that’s a wise plan, Tullman says.

“Big businesses make slow paying a part of their cash flow management all the time. Small businesses shouldn’t be too proud to do the same thing.”

 

Increase You Cash in Reserve

When it comes to creating an emergency fund, more is always better. As a recession approaches, owners should think about their cash flows and the amount of money they hold in reserve. Unfortunately, one size doesn’t fit all.

“There is no simple rule of thumb. It all depends on the type of business and the size of the business as well as the nature of the typical cash flow,” Tullman says.

Since we might be going into a tough economy, it makes sense to have 3 to 6 months of payroll and payroll taxes in reserve, says Tullman. You should also shoot for 3 months in reserve of what your other payables are based on an average month.

SCORE, a volunteer network of business mentors recommends looking at your monthly cash flow report to provide historical and seasonal perspective, determine the cash received from sales versus the cash that was spent for your “net burn rate.”

Then determine how much cash you plan to use in the next 12 to 15 months. Create a financial forecast or look at the financial section of your business plan if you’re a start-up.

 

Defer Discretionary Expenses, Focus on Retention

For now, consider deferring discretionary expenses, Tullman says. Especially ones related to marketing and new customer acquisition costs.

Instead focus on retaining customers. Tullman says too many businesses take their current customers for granted. That retention is important and “a lot better investment in tough times than trying to recruit new customers,” he says.

Instead commit resources and people to getting the job done to ensure your current clients are happy.”

Move immediately to protect and secure the people presently in the boat–existing customers are the most accessible, nearest to reach, and hopefully the easiest to hang on to,” Tullman says.

That means anticipating your customers’ needs so you are being proactive instead of reactive. Focus on customer quality and loyalty, not merely quantity, Tullman says, to build up the right clientel.

“The smartest business builders will tell you that not all customers are equal in value or importance. Even if they’re not ‘bad’ customers,” Tullman says.

Then when the recession hits, “hunkering down and making plans to hang on to the customers you have is the smartest option right now,” Tullman says.

Other Advice – Lock-in Rates When the Interest Rates Are Lower

When the Federal Reserve lowers interest rates, as they did in July, it’s usually an indicator the economy is leaning towards a recession. That’s because interest rates are usually raised when the economy is improving. When the economy is slowing down, the Fed cuts interest rates.  This is to encourage borrowing in the hopes of spurring on the economy.

“The best time to borrow long-term money is when the Fed stops aggressively lowering rates; however, this is not easy to time, because it can take many months to attract a private lender, and banks are not always willing to commit to long-term loans at low rates when they expect rates to rise in the near future,” says Victoria Duff of the Houston Chronicle.

Good Business Vendors Relationships Can Help Your Business Grow

Optimize your business vendor relationships to grow profitably

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After customers, it’s typically business vendor relationships that hold the key to the success of your business. That’s because unless you’re using only thin air to create the products and services that you sell, you need vendors to supply your basic needs. Among other things, healthy vendor relationships can give you the benefit of:

  • Competitive prices
  • Liberal payment terms
  • Responsive and flexible service
  • Superior quality goods
  • Being ahead in line of other vendor customers for order fulfillment when supplies of a particular item are limited
  • Referral business
  • Market insights

When your business is new or not yet firmly established, getting some or all of those benefits can make the difference between quickly building a strong foundation for profitable growth, and a wobbly start. But you don’t need to bend over backwards to build strong business vendor relationships. That’s because vendors may have as much to gain from a good relationship as you do. After all, you value strong relationships with your own customers and do what you can to create them; it’s a matter of mutual interest.

Share Your Vision

The process of building rapport with vendors can begin with sharing your dreams and plans for your enterprise, particularly if there is something unique about it. Without revealing the recipe for your “secret sauce,” letting vendors know your basic game plan to grow and prosper can promote confidence and optimism that you will become an increasingly substantial customer worthy of attention.

On a more concrete level, pay your bills on time. Your suppliers aren’t in the lending business.  You can’t assume they have a cash cache to fall back on if you’re late paying your invoices. And even if they have plenty of liquidity, what vendors need most is confidence that you will pay when you agreed to, so that they can manage their cash flow accordingly and not worry about being stiffed.

Manage Your Business Credit Score

Also, keep in mind that how promptly you pay your vendors is a big factor in your own business credit score. That’s important for your business for the same reason that your personal credit score matters: It influences your ability to borrow, and the interest rate you’ll be charged. You might need to borrow occasionally to maintain a good payment track record with vendors, but doing so could more than pay for itself.

Another step that your vendors will appreciate, just as you would if your own customers did for you, is to give them some referral business. Naturally, however, you wouldn’t want to encourage your direct competitors to use your vendors.

And just as you’d like to be your customers’ only source for whatever you sell, your vendors would like to be your sole source for their products. The more you buy from a supplier, the more benefits you might reasonably expect in return. However, depending upon the nature of your business, putting all of your supplier “eggs” in one basket could put you in a risky position. For example, if a sole supplier runs into problems and you’re left without a ready alternative source.

Tips to Optimize Business Vendor Relationships

Here are some additional steps you can take to create strong business vendor relationships:

1. Pick a single vendor relationship manager.

Chances are, when you’re just getting started, that person will be you. Regardless, the point is consistency, to facilitate relationship-building and maximize the efficiency of interactions.

2. Get on the same page with expectations.

It’s important to ensure that you and your vendors have the same understanding of what it means, for example, to respond “promptly” to a request or inquiry, preferred communication methods, and so on.

3. Learn and try to address your vendors’ needs.

Beyond matters like timely bill-payment, a vendor might, for example, prefer that you place your order at a particular time of the week, use a particular order entry system, have a preferred minimum order size, or many other preferences. These might not be hard-and-fast requirements, but preferences that, if honored, will make the vendor’s life easier and can be done at little or no cost to you.

4. Give vendors a heads up about expected changes in your supply requirements.

Vendors have inventory management challenges too. If you’re expecting a decline or increase in your typical order size, advance warning will make it easier on your vendor.

5. Make time for face-to-face interaction.

Although this may not be possible for vendors based far away (except possibly at trade shows), getting in front of a supplier, sharing a meal together, can go a long way towards building a strong business relationship. This is particularly true in an era in which electronic communications have even replaced periodic simple telephone conversations.

6. Recognize that to err is human.

We are all fallible. Sooner or later a vendor will botch an order, send you an inaccurate invoice or even a defective product. Jumping down a vendor’s throat when it happens can sabotage your efforts to have strong business vendor relationships. And if a pattern of mess-ups begins to emerge, the strength of your relationship might determine how quickly the problem can be addressed, and your vendor’s willingness to make amends.

7. Help the vendor to improve its performance.

We’re constantly bombarded with customer surveys, and typically ignore them for lack of time to fill them out. But just as you’d like constructive input from your customers, your vendors probably would also appreciate some feedback from you.  And also like you, they appreciate both negative and positive feedback. This makes you a partner in the product or service quality improvement process, and strengthens your relationship.

There are no guarantees when it comes to vendor relationships. Sometimes you just have to put up with lousy ones, despite your best efforts to optimize them. But chances are good that you will succeed if you make a concerted effort. And when you do, you will have made a strong investment in your business and your long-term success.

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Best Books for Small Business Owners: Blitzscaling

Best Books for Small Business Owners: Blitzscaling

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“Lifelong learning is fundamental to long-term success,” says Justin Kulla, member of Forbes Coaches Council and founder of BusinessBlocks. Today, the world moves much faster than it did even five to 10 years ago. And there’s more competition than ever.”

One way to keep evolving as the leader of your business is to read books for small business owners. But, as a business owner, you have a lot on your plate. It’s often difficult to make time for continued learning and professional development, but making time to focus on your own growth is crucial. Not only does it set a good example for your employees, but it also keeps you up to speed on current innovation and workforce trends. In today’s world, change is accelerating on several fronts, and as a business owner, you need to stay nimble.

With this new series, we aim to save you time by covering well-known and new business books and their key take-aways, so you can determine within a minute if a book is relevant to your business and your situation—really, whether it’s worth your valuable time.

August Monthly Must-Reads: Best Books for Small Business Owners

Business Book:

Blitzscaling, by Reid Hoffman and Chris Yeh

Focus:

Exploring business tactics that spark and manage periods of high growth

Main Idea:

“When a market is up for grabs, the risk isn’t inefficiency—the risk is playing it too safe. If you win, efficiency isn’t that important; if you lose, efficiency is completely irrelevant.” – Blitzscaling

Great for Small Business Owners Who:

Have identified a new opportunity and want to quickly capitalize on it and grow, especially if theirs is a low-margin business and/or related to digital technology

Synopsis:

Written by co-authors who have scaled start-ups into billion-dollar businesses, including PayPal, Blitzscaling opens with a foreword by Bill Gates and then introduces the concept of blitzscaling, which “prioritizes speed over efficiency in an environment of uncertainty, and allows a company to go from ‘startup’ to ‘scaleup’ at a furious pace that captures the market.”

The authors explore the ideal market conditions and business models for this strategy—including when not to move forward with blizscaling. The contents:

  • Describe situations when blitzscaling is imperative.
  • Explain how to recognize when to stop blitzscaling.
  • Cover critical management changes to make as companies grow.
  • Include case studies of notable fastest-growing companies, like Uber, AirBnB and Amazon. It also includes case studies outside of the technology sector.
Key Take-Aways:
  • Blitzscaling is a strong strategy only when speed-to-market is the main and crucial factor to success.
  • Companies should only engage in blitzscaling if their product and/or market, their business model, and the market conditions are the right fit for it.

As the business world evolves, new opportunities will continually arise. Be ready to capitalize on them with the lessons from this Blitzscaling in mind.

Reviewers Say:

“I take away a better understanding of why some companies engage in blitzscaling hyper growth as their #1 priority, and why this is such a powerful technique to overwhelm the competition. This book reveals some really interesting techniques to grow the customer base, organizational strategies depending on the size of the company, and management styles.”

“I highly recommend this book to learn the benefits of blitzscaling. It’s very interesting to read, it’s sometimes hard to put the book down because there’s something useful on every page. Just don’t expect much depth about companies that attempted blitzscaling and failed while trying, this book is more about success business cases.”

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Young woman relaxing on beach, ocean view, Vacation Outdoors Seascape Concept

Taking A Vacation from your Small Business: How To Get Away This Year

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Business owners are known to work a lot of hours, and most find it difficult to take time off. According to a study by the small-business accounting firm Xero, 85 percent of business owners work while they’re on vacation.

Getting out of the office and taking a vacation can help you avoid burnout that can happen when you work long hours for a continued amount of time. A change of scenery can get your creative juices flowing. And entrusting your staff builds and deepens your relationships.

So, get out your calendar and block out some time to take off. Here’s what you need to do before and during your vacation so you can get away and return refreshed and ready for work.

Train Your “Replacement”

While it sounds cold, everyone in your business should be replaceable, including you. If not, an unexpected absence could wreak havoc on your business. To find your own replacement, choose the person in your business you trust and consider to be capable and reliable. It can help if they are already a manager or have management experience.

Train the person to handle your daily tasks. It can help to have them shadow you for a few days or weeks before your vacation. While the employee probably won’t be taking care of big-picture actions, like long-term strategies, they may need to solve problems in your absence. He or she should be comfortable making decisions. Leave detailed instructions on the tasks you do. And create a list of trusted vendors and service providers they can call in case of an emergency, such as a crashed website or building problem.

Prepare Your Staff

In addition to finding someone to assume your duties, prepare your staff for your absence. Let them know who is in charge as well as the level of their authority. Make sure you’ve left your staff with everything they need to do their jobs. Also, let employees know when you do want to be contacted. Do you want a daily update via email? What types of things warrant a phone call? Should they text if they have a question or make a phone call? Be very clear about what warrants communication. It could be a call from certain clients, or only in case of a fire.

Inform Your Customers

Let your clients know you’ll be away on vacation, especially notifying those you consider most valued. Sometimes clients prefer to work with an owner rather than the employees. You don’t want your best customer finding out you’re away from an out-of-office (OOO) autoresponder email. It could send a signal that their business isn’t important. Be proactive, letting them know ahead of time, so they can plan accordingly by getting what they need from you before you leave or as soon as you return. Also, let them know who will be in charge in your absence if they need something before you’re back.

Create an OOO Autoresponder

Even if you’ve notified your VIP customers, it’s a good idea to use an OOO email or voicemail message while you’re away. Some of them might forget about your trip, or you may receive a message from a potential new client. Be sure to provide the name and email of someone at your business who is handling work in your absence. Don’t give into the temptation of responding; that negates the purpose of an OOO. Trust that your team can handle situations that arise or that your client will wait until your return.

Don’t Make Any Big Changes Before You Go

You want your business to be “business as usual,” so don’t make any big changes that might become emergencies. For example, don’t launch or redesign your website, don’t schedule a big sale and don’t create a new marketing campaign. You don’t want to have to deal with questions or concerns while you’re away that will be hard to resolve from afar.

Time the Trip

It can help to be strategic and time your vacation during your slow season. You’ll leave your staff with less to handle, and you’ll have more peace of mind that they aren’t overwhelmed. Or consider taking a shorter trip instead of an extended vacation. If your office is normally closed over the weekend, for example, tack on two days for a four-day getaway. You can still get lots of R&R with a shorter vacation.

Do a Trial Run

Before you leave, test the waters and see how your staff does. You could work from home for a few days or just go away for a day. Seeing how well your team handles your absence can give you the confidence you need to go away on vacation.

Set Rules for Yourself

When you’re gone, set some rules for what you will and won’t do. Even if you prepare before you leave, it’s easy to get drawn back to your business. You might think a quick call won’t hurt, but it’s important to set limits and rules for yourself. For example, limit checking business email to certain times of the day. Or make a rule to not check it at all. If you do check into the workplace, do it at a time when you are on your own, so you don’t disrupt the vacation of those you’re traveling with. Unplugging completely may not always be realistic, but you need to set rules.

Have Fun

Once you’ve prepared your team and your business for your vacation, it’s time to enjoy the time away. Owning a business gives you a level of freedom, and it’s time to enjoy it. When you take a vacation–really take a vacation–you will benefit from the time away and return feeling refreshed and ready to take your business to the next level.

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How To Hack the Fed's Interest Rate Drop

How Small Business Owners Can Hack the Fed’s Interest Rate Drop

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After a series of increases over the past year and a half, July marked the Federal Reserve’s decision to push the first interest rate drop since 2008. Their efforts come at a time when many feared a downturn. The vote of 8-2 triggers a small rate cut. It was designed to keep the historically long economic expansion going strong. The change will set interest rates at between 2 percent and 2.25 percent. This affects everything from consumer mortgages and car loans to small business investments and credit card debt.

This news isn’t welcomed by investors who were enjoying a bump in savings rates. However, the change can be a boon for many small business owners. Borrowing will now be cheaper, if even just by a bit. Depending on how much debt you have, you may use some of that interest savings for your own growth goals.

With so many options available, you might not know where to begin. Here’s what the experts suggest you do to take full advantage of the new changes.

Review your capital structure

While there are several paths you can choose to maximize this time in the market, Small Business Consultant Andrea Travillian recommends taking a step back and assessing your financial health.

“The first thing you should do is review your capital structure,” Travillian advises. “As rates are dropping, it may be a good time to reallocate how much financing is from debt and how much is from equity.”

After this, a wise move would be to redo cash flow projections. “This will allow you to see exactly how much of a difference it will make on your business.”

With a better view of your company, you can choose to move forward with one – or more – of the following plans:

  1. Repay debt

Making additional or larger payments on your existing debt can accelerate progress and get you out of debt sooner. Travillian reminds us that it’s a wise way to lower overhead, too. Put more of your money toward your business, instead of paying the bank.

  1. Refinance debt

Fed rate reductions are an ideal time to take advantage of low rates. Refinancing floating rate debt to a fixed loan gives you the added benefit of knowing exactly how much you’ll spend in payments each month. You can also plan around how long repayments will take. “It makes cash flow easier to predict,” says Travillian.

  1. Reallocate money for growth

There’s also an option to pay yourself first. Instead of handing the extra over to a lender, you could reinvest the funds into your own company. Businesses can use the extras to make much-needed upgrades in operations, product, or personnel.

Kassandra Dasent, CFEI, suggests companies review goals for the next 12-24 months. Then, consider spending on these pre-established company objectives. However, Dasent cautions business owners without sufficient cash reserves to “address essential operating expenses in the event of a downturn. Allocating excess funds to cover this should be considered a priority.”

  1. Make no changes

One final choice is to keep things as is. Depending on your debt level, you may not experience much savings. For some companies, the interest rate reduction won’t cause enough difference to warrant the energy used to change course.

Big. vs. small goals

The next steps should be tailored to your company’s unique growth and savings goals, and some of that will be determined by the size of your endeavor. “The larger and more established the company, the more options they have to manage the interest rate fluctuations,” shares Travillian. A Fortune 500 company, for example, is better-poised to deal with ups and downs of the market. Tools available to them, specifically, may include futures, options, and interest rate swaps.

Startups, on the other hand, are limited in how much they can squeeze out of this opportunity. In these cases, “the debt levels may not warrant taking these measures,” she admits.

Dasent says smaller companies could benefit from seeking a new round of financing. Another option is to “access new lines of credit to infuse needed cash into their business at a cheaper rate of interest.”

Assess your debt situation

Debt levels vary, and those with low debt levels won’t see the same impact of the rate reduction. If nothing else, paying down debt faster is a simple way forward. A business could use it as an opportunity to buy smaller businesses with debt to grow their own faster.

“Those with higher levels,” Travillian shares, “would use it as a time to find better deals and then, either move or negotiate to lower levels.” The extra wiggle room in cash flow could lead to new opportunities for growth.

Know how the market works

Travillian encourages business owners to know the reasons behind this — and future — interest rate reductions. Depending on why it’s happening, your course of action could vary. She explains that the Fed might do this for one of two reasons. They could do it as an effort to keep inflation low during a thriving economy. In this case, it’s used as a stimulant for what they see might be a slowing economy. These interpretations have very different outcomes for companies.

“If the economy is slowing, there will most likely be more rate reductions,” she explains. “You need to determine what happens to your business during a downturn. Do you need to save for slower sales? Is your business one that sales can increase during slower times? These things should factor into what you do with the extra cash flow.”

Travillian shares a simple litmus test for businesses unsure with how to move forward, as well. “One of my favorite questions to ask is: ‘if growth goes to zero, can your business survive on your current revenues?’ Use this answer to help guide what you do with funds.”

She also recommends business owners reach out for professional advice if there isn’t a clear path to take. A CFO or CPA trained in helping you make those decisions will get the best capital allocation for the most profit.

Take your time

If there’s nothing else to take away from this news, it’s that markets change all the time, but knee-jerk reactions won’t likely benefit anyone. Travillian reminds businesses that there’s no need to rush into whatever decision you make from the Fed’s latest move. “You have time to make the right decisions,” she cautions.

Dasent also cautions companies to not overextend themselves during this time. “World economies, including that of the US, are slowing down. It is being reflected in an inverted yield curve, which can signal an eventual recession. This means that financial and other lending institutions will consequently adjust their risk models to prevent corporate default which would in turn result in a tightening of access to credit.”

While what the Fed does next is anyone’s guess, some have hinted that this interest rate drop may be the first in a trend. It’s best to approach each new rate change as a significant opportunity to keep your business reaching its growth goals.

How to avoid small business failure

5 Reasons for Small Business Failure (and How to Avoid Them)

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Small business failure is a fact of life every budding business owner must face. As exciting as a new entrepreneurial venture can be, it’s foolhardy to rush into the experience while neglecting certain key elements, such as cash flow management, hiring and retention, marketing and operations. It’s a tall order under any circumstances, but even more so when the life of a fledgling business falls on one person’s shoulders.

There are many reasons for why a small business doesn’t make it. One primary cause, according to Investopedia, is that successful business owners “must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.”

This gargantuan challenge may be why approximately only 20 percent of new businesses make it through a full first year of operation, and why almost 50 percent of small businesses can’t endure to five years or longer. Citing these statistics, USA Today notes, “The good news is that survival rates begin to flatten out after several years of operation.”

Confronting and overcoming these challenges means the difference between survival and failure in today’s marketplace. The most effective strategy involves understanding the primary causes for failure and planning beforehand how you will address them.

Here’s a look at five major reasons why some small businesses don’t achieve profit and success:

I. Insufficient capital and poor financial management

For every business owner, there’s a constant tension between understanding how much money is required to maintain daily operations and the amount of revenue that comes from the sale of products or services. When this discrepancy becomes acute, a business can simply run out of money and then be forced to shut its doors.

In fact, keeping pace with cash flow is essential to small business survival. More than 80 percent of companies close because of cash-flow-related problems, making this the number one reason for small business failure. Even “profitable companies fail all the time for the simple reason that they run out of cash.”

To offset this dire outcome, it’s critically important to create (and stick to) a realistic operational budget for your business. A budget plan must include the following:

  • Assessment of the amount of money needed for day-to-day operations
  • Costs for fixed and variable overhead expenses
  • Funds to pay third-party suppliers and vendors
  • A plan for borrowing money when needed, either through asset-based financing, investment capital, conventional loans or business grants

Experts strongly advocate researching and compiling information on these budget plan elements before you actually need the working capital. It’s better to have this data on hand when money is needed, rather than waiting until a cash-related crisis occurs.

2. Lack of business planning and a viable business model

As noted, a viable cash-flow strategy should be an essential component of a business plan. Other factors include:

  • What the business is about (its products or services, mission, vision for the future)
  • A strong financial forecasting model (based on estimated operating costs and generated revenue)
  • Current and projected labor needs (the number of employees needed now, and in the future)
  • An in-depth competitor analysis (understanding what the marketplace looks like)
  • Marketing and sales strategies (how to reach prospective customers and close deals)

Adoption of the right business model is another element to include in your plans. Study similar businesses in your industry, both locally and in other regions, and establish a model that includes some or all of these elements:

  • Planned company infrastructure
  • A milestone chart with key tasks and objectives to be addressed and completed by assigned dates
  • Hiring policies and guidelines for personnel
  • Preliminary or more sophisticated branding strategies

Addressing some or all of the above once the business is underway risks playing catch-up during a critically important early growth stage, and could quickly lead to small business failure.

3. Leadership and management shortcomings

An inability to transition from being a solo entrepreneur to a CEO or business owner with employees is another “mine-field” for many businesses.

Not every entrepreneur comes equipped with the types of leadership or management skills needed to supervise, inspire and manage a group of individuals. Someone ill-equipped for this task can make a wide range of management mistakes, such as hiring too quickly and having the wrong team on board, or failing to create a human resources policy that covers most labor-related contingencies.

Such shortcomings can result in a workplace exhibiting poor morale and low productivity, key ingredients for small business failure.

It’s incumbent upon small business owners to find the time and resources to hone their leadership skills. Take online human capital management classes. Participate in leadership webinars. Drill down deep into your professional network and locate a person who’s willing to help out as a leadership mentor. Do everything possible to prepare for recruiting and managing employees before management problems arise.

4. Absence of an effective marketing strategy

Coping with funding, putting together a business plan and starting the hiring process are big challenges in and of themselves. Assuming you have a great new product or service idea, and the means to make it available to customers when they want it, the next question is–how will you get the word out?

Some small businesses fail because they’re unprepared for the demands of marketing their company’s offerings. They lack an understanding of who their target customers are, what problems or challenges those customers face, and how their product or service will serve as a solution. These small businesses don’t pay sufficient attention to the value of branding, public relations, and related marketing efforts.

It’s never a case of “Build it, and they will come.” You have to find them!

Be certain you understand what sets your business apart–its unique value proposition. Then make every conceivable effort to get the word out there.

“Use social media, word of mouth, cold calling, direct mails, and other tried-and true marketing techniques,” advises Bplans. Find ways to encapsulate your value proposition in language customers can understand “so you can capture a market share and begin building your conversion rates.”

Marketing consumes an unpredictable amount of time, money, and resources. It’s essential to incorporate a full-fledged marketing plan within the business plan, so you have a realistic sense of what’s needed to reach and attract your target audience. Without such a plan, you risk going through all of your available cash and having little to show for it.

5. Neglecting to anticipate growth and expansion challenges

Finally, there’s the challenge associated with more successful business ventures. In a period of accelerated consumer demand and record-high sales, there comes a point when the existing infrastructure, current business model, employee workforce, and other key elements are no longer sufficient to handle issues related to growth and expansion.

A failure to anticipate this nearly inevitable event has caused many small businesses to shut down.  This is, simply, because they lacked the vision and resources to expand when necessary.

To counter this threat, even at the earliest stages of your business, look into the following options to handle the risks (and benefits) of rapid growth:

Preparing for success is just as important as guarding against failure. With plans and strategies in place, you’re better equipped to cope with ever-changing marketplace conditions.

Yes, small business failure happens, sometimes at an alarming rate. But research, knowledge, and drawing on past experiences and learning from others can pave the way towards a more fruitful outcome for you and your exciting small business.

Here's how to avoid cash flow issues.

7 Signs You’re Heading Toward Cash Flow Issues (and how to solve them)

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Cash flow can make or break a small business. While generating sales is nice, you’ll still be in trouble if you don’t have the money on-hand to pay your employees, vendors and other bills. It’s no wonder that 69% of small business owners reported being kept up at night because they’re worried about cash flow issues, according to a survey from Intuit QuickBooks (slide 2).

The earlier you can start addressing potential cash trouble, the easier it is to find a solution. Here are the top warning signs of cash flow issues small business owners face as well as how you can respond.

1 – Invoices Aren’t Being Paid

Making a sale is often just half the battle. You also need to collect payment on your invoices. If you notice that it’s taking clients longer to pay their bills, that can lead to a serious cash flow squeeze.

When it comes to collecting payment, don’t be shy. Contact clients as soon as their payment is late and keep reminding them until they catch up. The longer they go without paying, the more likely it is they could skip payment altogether. For future sales, you could shorten the payment terms as well, like moving from 30 days down to 15 days or asking for a partial advance on orders.

If you need money now, another solution would be to factor your invoices. You trade your unpaid invoices to a financing company for a cash advance. They are then responsible for collecting payment from your customers. Once they get the payment, they deduct their fee from the proceeds and give your business the rest.

2 – Uncertainty Over Future Income and Expenses

If you aren’t sure what the next few months will look like for your business, that could be setting the stage for the cash flow issues small business owners face. While uncertainty itself doesn’t create the financial trouble, it gets rid of your ability to plan so when trouble does come your way, you’re caught off-guard. For example, you have no idea whether a major client will renew in 3 months. Or that your monthly expenses are slowly creeping up without you noticing.

Take some time to forecast your future cash flow, revenues and expenses over the next six months to a year. Even if your estimates are off, just spending some time thinking about the future can help you catch problems earlier, like you can start cutting back expenses now just in-case that large client doesn’t renew. It’s better to overprepare than underprepare.

3 – Having Trouble Meeting Payment Deadlines

You need cash to cover major expenses during the year like payroll, taxes and your lease. If you find yourself missing these deadlines, that can lead to serious trouble. Not only could you face penalties and fines, like from the IRS, it can also turn into even worse problems like a key employee quits or your top vendor stops accepting your orders.

In the short-run, consider borrowing to cover these expenses. It would cost your business a lot more to replace your star employees and repair your reputation versus paying interest to take out a business loan. Long-term, keep working on your budgeting and cash flow forecasts so you can better anticipate when these deadlines are coming up and have enough cash for them.

4 – Growing Short-Term Debt

Debt financing can help you grow your business, but you need to find the right balance. If you keep adding more and more short-term debt because you don’t have enough cash to cover your bills, that problem could start to snowball. Not only will you still need to cover your existing business expenses, you’re also adding on the interest and loan payments for your debt.

One way to see whether you’re borrowing too much is by looking at your debt-to-income ratio, your total monthly debt payments divided by your gross monthly income. Ideally, this ratio should be 43% or lower.

If you have too much short-term debt, contact your lender and see if there’s a way to consolidate to a smaller payment or if you can pay off some of the loans ahead of schedule. That’s why when you borrow, it can be useful to work with a lender that doesn’t charge prepayment penalties because then you can get out of debt earlier.

From there, work to bring down your business expenses and speed up your cash flow collections so you can start paying off the debt and bring your ratio back to a more manageable level.

5 – Inventory Starts Piling Up

Inventory piling up is another sign of potential cash flow trouble. Not only are you spending money on unsold inventory, you’re also paying for the storage, security and insurance to protect these goods. If it’s taking you longer to turn over your products, you may need to downgrade your sales forecasts so you buy less inventory or change your business model because client tastes have changed, so they want something else.

You could also use inventory management software to keep track of what’s selling and what needs to be resupplied. It takes out the human error where you mistakenly order too much of certain products and they go unsold.

6 – Missing Vendor Discounts

Some vendors offer discounts when you pay early, like before 30 days. If you take advantage, that can help boost your profit margin by lowering your cost of goods sold. Even a small discount of 5 to 10% can make a difference.

But you need cash to meet these discounts. If you’re unable to qualify for vendor discounts or even worse, you’re getting hit with penalties from paying late, that’s another warning sign. While it’s not as urgent as some of the other problems on this list, it’s still costing your business money.

A business line of credit could be the answer. When you don’t have the cash, you can borrow against your line of credit to pay early and qualify for the vendor discounts. Once your business has money, you can pay off the line of credit and then borrow again in the future. Even after paying interest to borrow, chances are you’ll come ahead by claiming the vendor discounts.

7 – Turning Down Projects/Sales

When businesses are short on fund, they may have no choice but to turn down work because they can’t cover the supplies, staff and other costs. It’s an all too common problem as 52% of small businesses have missed out on sales/projects worth $10,000 or more because of a lack of cash, according to Intuit QuickBooks (slide 2).

This is a clear-cut scenario when borrowing money will grow your business. With a short-term cash flow loan from an alternative lender, you could finance the new project/client, collect your earnings and then pay the loan back as soon as you want, as these lenders do not typically charge an early payment penalty.

If you can prove that you’ve got a sale nearly locked up, you can also use purchase order financing. Under this arrangement, the lender gives you cash to complete the order and collects their fee only after the client pays for the job. You don’t have to take on debt.

Cash flow trouble can sneak up on you and by then, it’s often too late to fix. If you see any of these warning signs, it could be time to make changes and fast. By following this advice, you’ll keep your business cash flow positive no matter what challenges come your way.

tips for strategically growing your healthcare practice

5 Tips for Strategically Growing Your Healthcare Practice

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If growing your healthcare practice is on your agenda, it’s important to prepare for every challenge. You may encounter obstacles along the way that can make expansion more difficult. Identifying potential roadblocks before they become a problem is key to help your practice reach its potential. Here are five of the most common struggles to be aware of when pursuing practice growth, along with practical resolutions to overcome them.

1. Being inadequately staffed

You rely on your staff to help care for your patients. Not having enough staff can slow your progress when growing your healthcare practice.

The quality of service you deliver to your patients may suffer if you don’t have a large enough staff. That could result in lost revenues if some of your patients decide to switch to another healthcare provider.

In addition, having the wrong staff can also be detrimental to your growth. Hiring unfit employees can be costly. It takes money to hire and train new staff members. A high turnover ratio could make your return-on-investment nonexistent.

If you’ve run into either roadblock, it may help to reevaluate your hiring strategy. For example, consider what you’re doing to attract and retain quality employees. Are you properly vetting candidates to ensure you’re only hiring qualified people who are committed to helping you grow your practice? Is your employee benefits package enough to keep those employees on the job?

Also consider the overall office culture at your practice. Ideally, you’re taking care of your employees in ways that encourage them to take the best care of your patients. Asking your staff for feedback through an anonymous survey can help shed light on your practice and how employee policies are perceived.

2. Disorganized marketing

Word-of-mouth can be a powerful tool in growing your healthcare practice. But, you may also need to invest in traditional marketing and advertising. For that, you need a clearly defined plan, including a targeted customer profile, so that your marketing speaks directly to your ideal patients’ needs.

When your marketing plan is disorganized – or worse, nonexistent – it can be hard to generate interest in your practice because you’re not visible in the marketplace. Your message and branding may be perfect, but it’s not noticed by people you hope will become patients. On the other hand, you may be connecting with the right people, but your messaging is wrong.

In either case, you end up with a trickle of new patients rather than the flood you’re seeking. You can remedy this by reviewing what’s working and what’s not with your marketing strategy.

Look back at your marketing and advertising spend for the last six months to a year. Look at where you invested the most money. Then, look at how those investments corresponded to revenues and profits.

If marketing is something you don’t have much time for or you feel “in over your head”, consider whether you want to outsource to a professional agency. You could use a short-term loan to cover the costs if you’re not comfortable pulling money from your cash flow.

3. Outdated accounting methods

Managing the books may be one of your least favorite tasks, but it’s an essential day-to-day task in the growth of your healthcare practice.

When you’re not clear on what’s coming in and out of your business each month, it’s hard to make use of your financial resources. You could be wasting money unnecessarily that could be redirected into your marketing or hiring budget to help you expand.

If you’re using an old school accounting method, such as paper ledgers or spreadsheets, consider making an upgrade. Switching to a cloud-based accounting software, for instance, can make it easier to centralize payroll, accounting and financial record-keeping for your healthcare practice all in one place.

You can share access to the software with your accountant or anyone else in the practice who’s responsible for managing financials. This can increase transparency when it comes to managing the books. It can also save your practice time and money when your accounting process is more efficient.

4. Slow-paying patients

Lags between the time services are rendered and payment is received will hinder your growing healthcare practice. Slow-paying patients can be a challenge to expansion if you’re relying on those payments to help fund growth. At the same time, you don’t want to lose those patients entirely.

So what do you do? The simplest solution may be revisiting your payment terms.

For instance, consider:

  • How many payment methods you accept
  • How long you’re giving patients to pay
  • Whether you’re assessing late fees or penalties
  • How your practice communicates payment terms to patients
  • What incentives exist, if any, to encourage speed of payment
  • How you train your staff to handle requests for payment

You should have a simple payment process if you focus on growth. That may mean expanding your payment options to include mobile wallets, ACH transfers or offering discounts to motivate patients to pay early. There may be an initial financial investment to make if you have to retrain staff to navigate payment conversations or upgrade your patient management software. But if that results in growth because you’re keeping the patients you have, increasing payment rates and attracting new patients with your payment structure, it can be worth it in the long term.

5. Uneven cash flow

Cash flow can be a roadblock to growth for just about any business–especially for medical practices. Managing payments from patients and insurance can mean delays. You still need to pay your staff, suppliers and operating expenses, though.

If your monthly cash flow is uneven, you may feel limited as to how much of it you can afford to invest in growth. Looking beyond your cash flow to small business financing could be the answer.

Kapitus, for example, offers healthcare financing options designed to meet the unique needs of medical practices. They can also assist you in pursuing more traditional small business loan options, such as term loans, SBA loans or equipment loans if you need to outfit your practice with new equipment.

When considering a loan to help manage cash flow and growth, take time to review the terms carefully. Consider what you’ll pay in interest and fees, how much you can borrow, how long you’ll have to repay the loan and the minimum requirements you’ll need to meet to qualify. The goal should be finding the best financing option to fit your needs and budget in growing your healthcare practice for today and the future.

To become a great leader, you need to be a great listener

How Better Listening Makes You a Better Leader

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Talking, rather than listening, seems to be a common trait among leaders in business, culture, politics, and elsewhere. The presumption is that anyone who attains the status of “leader” must have important things to say, and don’t have to bother hearing what anyone else wants to tell them.

In fact, the opposite is true.

The most effective business leaders get more accomplished because they know how to listen. While, of course, it’s important to weigh in on business strategy and organizational design, there’s a great deal to be gained by listening to what others have to say. The alternative–not paying attention to others and often not understanding what they are trying to tell you–is a good recipe for business failure, and should therefore be avoided at all costs.

If you want to improve your ability to hear those around you, keep the following tips in mind:

Stop thinking about what you’ll say next.

When in conversation, we’re all guilty of thinking more about what we plan to say next, rather than making the effort to truly hear what’s being said.

But as The New York Times points out, it’s more important to be “comfortable not knowing what you’re going to say next.” Rely on your ability to “think of something in the moment based on what the other person just said,” because this “sends a powerful signal to the other person that you’re truly listening to them.”

Tune out distractions.

It’s become a challenge for all of us to clear our heads in order to listen to what someone else is saying. But it’s imperative to make the effort. In a conversation with a customer, employee, vendor, or other stakeholder, do the following to listen better:

  • Shut off mobile devices.
  • Look away from your computer screen.
  • Close your office door to screen out external noise.
  • Avoid interrupting the other person.

Also, refrain from jumping in when there’s a pause in the conversation. “Never rush a speaker by completing his or her sentence,” notes Right Management. Being patient “will go a long way to building trust and rapport.”

Observe non-verbal cues.

People communicate through non-verbal cues and body language almost as much as they do through words. Effective listeners closely watch the speaker’s gestures, facial expressions, and their tone of voice. From these “clues,” they often deduce the real meaning behind what the other person is trying to articulate.

Expert listeners use their own body language to communicate, as well. While listening, they nod at appropriate moments, engage in friendly and welcoming eye contact, and display “open” body language (that is, not standing or sitting at a distance, with arms crossed). These non-verbal cues let the other person know they really are the focus of your attention.

Ask the right questions.

A good listener demonstrates his or her focus by following up on what the other person has said with a pertinent question. (This is also a good way to ensure you grasp the point of the conversation.)

When the moment is right, ask questions that drill down beneath the surface of the discussion. Avoid questions the other person can only answer with a “yes” or a “no.” Instead, ask open-ended questions that invite deeper commentary or invite the speaker to offer examples of what they’re talking about. These exchanges have the potential to yield far more effective insights that benefit everyone involved.

Listen to your team.

The strongest business leaders have abandoned the need to dominate a conversation. They understand that empathy grows out of genuinely hearing what others have to tell them and that they can make better decisions because of what they’ve learned.

This is often particularly true with people who make up your workforce. Leaders who “fail to truly listen to their employees run the risk of losing them,” notes Medium, adding that employees “who don’t feel listened to are more likely to feel resentment at their job and seek other opportunities.”

Business leaders who listen have a competitive edge over people who never stop talking and who neglect the growth that comes from listening to others.

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As a business owner, maintaining a work life balance is hard!

How to Maintain a Healthy Work Life Balance as a Business Owner

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As a business owner, it can often feel like you are in a constant struggle between feeling like your personal life is interfering with your work and feeling like your work is taking over your personal life. When the balance between your work life and personal life is out of sync, frustration, resentment, and burnout abound.

To avoid these issues and keep the best of both worlds in check, use these tips for maintaining a healthy work life balance as a business owner.

Create a designated office space in your home

Each space in your home has a purpose.  And each space is specially designed to allow you to function efficiently in that space. You wouldn’t try to cook meals in your bedroom.  You wouldn’t do laundry in your living room. So why would you try and do important work in a space that wasn’t designed for it?

A spare room could easily be converted to a designated office.  However, this  isn’t the only option for creating your space. Even a partial room can be your designated work space if it’s utilized correctly. In your space, be sure to have plenty of storage for office supplies, files, and other tools or stock needed for your daily operations. Hang visual elements on the walls that help you get into “work mode” and can be used for easy reference if needed. This might include a whiteboard, project timelines, blueprints, calendars, inspirational photos, or other industry-specific materials. If you don’t have a door to close off your space, try using a curtain or portable room divider. This will create mental separation for your space and help eliminate distractions from other areas of the house

Keep separate work and personal calendars

Calendars help us stay organized, but documenting every aspect of your life in a single place can sometimes feel overwhelming. Keeping separate work and personal calendars encourages a healthy separation between your work and personal life.   It can also help you quickly identify if your work life balance as a business owner is getting off track.

If you use a digital scheduling option, such as Google Calendar or Outlook, you can create separate personal and work calendars.  Then you can toggle them on and off as needed. If you prefer a paper calendar, try using a smaller pocket calendar to track your personal appointments that you can easily store inside your larger calendar. Whichever method you choose, view your personal calendar regularly to make sure you are designating time each week for activities away from work.

Avoid household chores during “work hours”

When you work from home, it’s easy to look around and see a multitude of personal tasks that need attention. While it may be tempting to do some dishes between conference calls or throw in a load of laundry in between work tasks, this could hurt your productivity – both personal and professional. When your mind is constantly distracted by personal chores, you aren’t giving your best focus to your work projects. Similarly, completing chores in fragmented bits and pieces throughout the day can cause you to lose momentum. This could end up creating more work for you in the long run. For example, forgetting about the laundry in the dryer when a conference call runs over can result in you having to unexpectedly iron an entire load of clothes.

If you worked in an office, you wouldn’t run home on your lunch break to do the dishes. So, give your home-based work hours the same respect. Set designated times for work and personal activities and compartmentalize your tasks. This will help you feel more focused and productive.

Listen to the “Back to Work” podcast

If you’ve jumped on the podcasting bandwagon, you likely have an extensive playlist of entertaining, inspirational, and personal development podcasts. “Back to Work” is a great addition to any play list, especially for entrepreneurs and work-from-home business owners. Hosted by Merlin Mann and Dan Benjamin, the podcast covers an entertaining mix of productivity tips, communication skills, suggested business tools, advice for overcoming work barriers, and more. Mann and Benjamin often discuss their own struggles with finding a healthy work life balance as a business owner. They also provide relatable stories and actionable advice for overcoming those struggles.

To live your best SBO (small business owner) life, it’s important to bring your best self each day. To do that, you’ll need to proactively take steps to balance your commitments and obligations throughout the week and develop a healthy relationship between your work life and personal life.

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