Category: Operations

5 Key Reasons to Forecast Your Cash Flow

Featured Stories | May 29, 2019 |

Projecting your cash flow can help you plan for the future, avoid unexpected shortfalls and even qualify for a small business loan.

Many overextended small business owners are weary of cash flow analysis. “Analysis” of any kind sounds difficult, and who has the time or energy to make future projections? More importantly, why bother to forecast your cash flow?

Consider that poor cash flow is the number one reason small businesses fail. An alarming 82% of companies fail due to cash flow issues. Convinced you don’t need to worry because your business is profitable? Think again. Profitable companies fail all the time for the simple reason that they run out of cash.

Beyond keeping your doors open, forecasting your cash flow can take the guesswork out of where you’re going. Having a good idea of your direction can help you make smarter business decisions. A little planning goes a long way, and it doesn’t have to be difficult.

These days, intuitive online tools can do the hard work for you, automatically generating cash flow projections based on your past transactions and financial history. No spreadsheets required.

There are myriad benefits to forecasting your cash flow, from avoiding dips into the negative to planning for growth. Consider these five ways that cash flow projections can improve your business.

Avoid Shortfalls

Unexpected shortfalls can be crippling, and it may take months (if not longer) to recover. Negative cash flow can creep up on you if you don’t consistently track the cash coming in and going out. Fortunately, shortfalls are often avoidable with a bit of foresight.

Projecting your cash flow will help you identify — and plan for — market swings, seasonal fluctuations and other business patterns that can lead to unpredictable cash flow. Forecasting can even help you visualize cash flow trends with the help of automatically generated charts and graphs.

Optimize the Timing of Accounts Payable and Receivable

On a more granular level, many avoidable cash flow issues are often a simple matter of timing. Significant lag time between invoicing your customers, or shipping out products, and getting paid can cause unnecessary strain on your cash flow.

Cash flow projections that are based on your financial history can help you anticipate when you’ll be paid by customers. This allows you to stagger or otherwise adjust outgoing payments to your vendors accordingly. In turn, this can keep you from dipping into the red.  And keeps you out of the uncomfortable position of not being able to pay your suppliers, or worse, your employees.

Prove You Can Pay Back the Loan You Requested

 When you apply for a small business loan, lenders will scrutinize your cash flow history in an attempt to answer one primary question: Can this borrower pay back the loan they’re requesting?

Asking for a loan of any amount without showing your plan for paying it back is a good way to land in the rejection pile. This is especially true if your current cash flow won’t clearly cover all of your regular operating expenses — plus your loan payment.

If you find yourself in this situation, cash flow projections can help strengthen your case by showing the lender exactly how you plan to use their funds to get to a place where you can easily make loan payments. This type of forecasting allows you to hand over a road map that can instill a lender with the confidence they need to approve your loan.

Anticipate the Impact of Upcoming Changes

Does your business plan to purchase new equipment? Launch a new product? Cash flow projections allow you to gain a complete picture of the ripple effect that these types of changes will have on your cash flow.

When your finances are synced up with FINSYNC, cash flow projections are automatically generated based on future invoices, bills due and payroll. You can then create “what if” scenarios, such as buying new equipment. Forecasting shows you how the cost will affect your bottom line.  It can also show the potential increase of revenue generated by the new machine.

Plan for Future Growth

In the same manner, cash flow projections can help you plan for future growth and expansion. Whether you’re expanding your team with new employees and need to factor in increased payroll costs, or ramping up production to keep up with increased sales, future projections help you see exactly where you’re going — and how you’ll get there.

Forecasting is also an excellent goal-setting tool to help you plan out the financial steps your business needs to take to achieve targets. There’s power in cash flow projections and the insight they can provide your business. Fortunately, this competitive advantage comes with little effort when you leave the analysis to today’s sophisticated online tools.

 

Guest post by FINSYNC

HELP! Should I Pivot My Business?

Featured Stories | May 9, 2019 |

6 Questions to Ask Yourself Before Pivoting Your Business

In business terms, changing the direction of your business is commonly referred to as a pivot. While it is most common to pivot your business in its earlier days, there is no reason why you cannot pivot your business at a later stage to respond to market forces.

If you are a business owner who owns a pizza shop that makes ice cream sandwiches, and you notice your customers spend more money on your ice cream sandwiches than they do on your pizza, you may consider re-inventing yourself as an ice cream sandwich company. But is this smart? Will people buy ice cream sandwiches in the dead of winter? If your product-market fit isn’t measuring up at any stage of your business, young or old, then you might consider pivoting.

How to know if you might need to pivot your business

One way to consider whether or not it is an appropriate time to pivot your business would be by running a SWOT analysis. If this a new term for you, SWOT stands for: Strengths, Weaknesses, Opportunities, and Threats. Here are a few key questions you can consider to help you think about your business and if a pivot may be in your future.

Strengths

  • Which factors help you make your sales?
  • What is your company’s unique selling proposition?
  • How is your company better than any other company?

Remember: It is necessary to consider your strengths from your perspective, but also from the perspectives of both your customers and competitors.

Weaknesses

  • What elements of your business need improvement?
  • How do you lose sales?
  • What do your competitors view as your weaknesses?

Again, remember to be realistic and factor in customer metrics you can track.

Opportunities

  • What interesting trends are forming or changing within your industry?
  • How can you implement technology to make your business more efficient?
  • What changes in social patterns may influence your business?

Be prepared to do some heavy research to look under the surface about how you can improve your business.

Threats

  • What are your competitors doing that you are not doing?
  • Are there environmental, economic or industry developments that may hurt your business?
  • What short, medium and long term obstacles to growth do you think you may face?

Again, being truthful about your position relative to others may be to your benefit.

Reasons Businesses Pivot

If you decide your business is at risk from competitors, technology, or changing consumer habits, here are additional questions to help determine whether or not to pivot your business:

1. Where are your sales slumping?

Look at which products or services are selling well and which are failing. Ask yourself why each is or isn’t working, and consider alternatives.

2. Are your competitors gaining ground? 

Imitation may be the sincerest form of flattery, but if you were first to market with a product or service, and now you have several imitators, it might be time to figure out how to solidify your position in the market.

3. Is new technology challenging your business?

Technology companies like Uber have been challenging traditional car services and taxis year over year. With most consumers using one or more screens a day, technology has the ability to rapidly change your business.

4. Are there any large trends with the potential to impact your business? 

Changing demographics and birth rates may affect your sales, for example, if you own a business focused on children. Economic forecasts, demographic surveys and industry insights may all provide data to help you plan ahead.

5. Are your costs increasing dramatically, decreasing your profit margins? 

In some cases, there may be little you can do to preserve your current business’s profits unless you find alternative products. For example, if you are an electric battery manufacturer and one of your primary supply ingredients is cobalt, and the cost of cobalt has increased 4X year-over-year, then you may have to increase your pricing dramatically or consider diversifying into other products.

6. Is your product-market fit appropriate? 

For example, if you own a yoga studio but your customers only want to pay $10 per class, even though you require them to pay $20 per class to be profitable, the business may not have an appropriate product-market fit.

Regardless of the reasons behind needing to pivot, you can successfully change up your business model. Just know that changes of this magnitude can’t happen over night. You need to spend time doing your due diligence and you need to be sure you keep an open mind – it can be hard when the business you originally imagined isn’t living up to your expectations. But take heart, because many big brands that you know today had successful pivots. These pivots took place, when the companies were small and or maneuvering through the lean startup world. It’s a pretty impressive roster! Starbucks, Twitter, YouTube, Suzuki, Avon, Wrigley. Check out their stories and get inspired!

 

Four Risks That Keep Business Owners Up at Night. And Your Defense Against Them.

Featured Stories | March 13, 2019 |
Events like natural disasters, disruptions to your supply chain, legal issues, a cyber attack, or changing market trends aren’t entirely within your control. But, you can help mitigate the damage they might bring to your business with a proactive and strategic risk management plan.

Here are four common risks to your business.  Along with some simple ways to help manage how exposed your business is to each.

Risk: Business Interruption

Would you be able to financially survive the process of rebuilding your business if damage deemed it inoperable for months? Even with insurance coverage to protect against events like floods, fires or earthquakes, FEMA reports that about 40% of businesses disrupted by natural disasters are forced to close permanently.

Your Defense: Business Interruption Insurance

Business interruption coverage replaces business income lost if you’re forced to cease operations.  This insurance can be used whether the interruption is due to a natural disaster, cyber attacks, or a massive disruption to your supply chain. Often added as a rider to a commercial insurance policy, the Insurance Information Institute says business interruption coverage may pay for a business’ fixed expenses, financial obligations to creditors, and expenses associated with establishing a temporary business location.

While access to such funds could be the difference between rebuilding your business post-disaster or closing it permanently, the Insurance Journal reports 66% of small businesses do not have business interruption coverage.

Risk: Loss of Intellectual Property

Your business’ intellectual property (IP) includes your business’ name, logo, products and services, taglines and any inventions you’ve created. Experts at Deloitte estimate intellectual property accounts for more than 80% of a business’ value.

If you have not formally claimed ownership of your intellectual property with patents and/or trademarks, do it ASAP.  Or, a competitor might (legally) steal your business name, inventions, likeness and ideas.

Your Defense: Secure Legal Ownership of IP

Make a list of all the elements that make up your business’ goods, services and brand identity and formally claim ownership of them with the United States Patent and Trademark Office. For a few a hundred dollars, you can file an online trademark application to secure ownership of brand assets. Securing a patent for an invention is a more intensive (and expensive) process.  But it’s critical if your business is based on a unique product, technology or solution that you’ve created.

If you hire freelancers or contractors to produce marketing materials, designs, or code for your business products, secure a signed work-made-for-hire agreement before projects begin. Unlike a full-time employee, you do not own contractor creations. A work-made-for-hire agreement should detail the scope of work and deliverables.  It should also state that you own the finished product a contractor creates.

Risk: Cyberattacks

Cyber criminals have their sights set on a target: 58% of breach victims in the past year were small businesses, according to the Verizon 2018 Data Breach Investigations Report.

Your Defense: An Internal Cybersecurity Action Plan

Protecting your business begins with identifying your business’ most important assets and systems. Because these “digital crown jewels” are most likely to be the target of any cyber attack on your business, the National Cyber Security Alliance (NCSA) says they should be the focus of your security efforts. Once you’ve identified them, the NCSA suggests creating a list of all the hardware and software your business uses.  This list should include the makes, models, serial numbers, and versions of software you are running.  You should also include on this list where you store your data. Use the latest version of security software, web browsers and operating systems.  Using the most updated versions will help protect against viruses, malware, and similar threats.  They can also activate automatic update features to keep you secure.

Perhaps most importantly, educate employees.  Train them on best practices for handling sensitive data.  And set clear parameters for how they are to use mobile devices and computers to do their jobs. Many cyber attacks originate from basic human error.  Clicking on an email attachment or downloading an app on an unsecured mobile device can make you vulnerable.  Using weak passwords also provides an easy in for hackers. Because they have dictionary-based systems that make it easy to crack passwords that include a word or name, cyber security company Symantec suggestspasswords be misspelled, “As much as possible, or insert numbers for letters. For example, if you want to use the phrase ‘I love chocolate’ you can change it to @1L0v3CH0c0L4t3!”

Risk: Cash Flow Problems

You can’t control your sales or the competitive environment.  But, you can manage their impact on your cash flow by ensuring you have access to cash before you need it.

Your Defense: Plan for Cash Flow Shortages Before They Happen

Retained earnings are like a business emergency savings fund, and they empower you to prepare for cash flow challenges. When these funds are readily available, you aren’t forced to borrow money, or default on your own business obligations. In addition to building your retained earnings, establish relationships with a few reputable funding partners so you know you have the financial support you need to maintain cash flow if sales decline unexpectedly. Risk is an inherent aspect of owning a business.  But, that doesn’t mean you have to be vulnerable to uncontrollable circumstances. Use these tips to help ensure your business is equipped to survive, despite any disaster that may strike

How to Stress Test Your Small Business

Featured Stories | March 12, 2019 |
In the banking world, advisors often talk about stress-testing portfolios — determining the effect of different scenarios on an individual’s or business’s holdings. The same should be done for a small business.

How prepared are you if the economy changes, and you need to dip into your reserves? How will you manage your cash flow? Do you, as a small business, have the resources to survive heavy losses if the worst-case scenario happens?

Here are six ways to help stress-test your business if there is a downturn in the economy.

1. Solicit advice from key advisors.

Do you have an advisory board or a brain trust of reliable partners? SCORE, a nonprofit that is a resource partner of the U.S. Small Business Administration, offers a network of volunteers including retired C-suite executives, who can help mentor.

Find your local chapter, which is typically done on a county by county basis, and attend a workshop or listen to a live or recorded webinar.

You can search for a SCORE mentor online or have the local chapter pair you with an expert who can help mentor you on your business goals. Some mentors bring in additional mentors to help with various aspects of your business, such as preparing for a potential downturn.

2. Create a plan for worst-case scenarios.

One of the more effective ways to prepare for a sluggish economy is to forecast trends. Look at what a dramatic drop in sales or a dramatic uptick in expenses might do to your business. Ask yourself what would happen if you lost a major vendor, product or service. What might this loss do to your company? Then decide where you could trim expenses, potentially increase profits or diversify your client-base.

3. Identify all your best customers.

Not all customers are created equally. That’s because some are more profitable than others. Once you’ve pinpointed who your best customers are, begin nurturing those relationships by continually adding value for them. Build brand loyalty for them by making sure it’s easy for them to do businesses with you. If a change in the economy affects your business, loyal, high-value customers may help sustain you until the market changes.

4. Review your financial cushioning.

Although the general recommendation for businesses has been six months, Hal Shelton, a SCORE mentor and angel investor says to look at how much you cash you need. Ask yourself these key questions:

  • How much cash have you been using?

Look at your “net burn rate,” the rate at which you spend your cash holdings. For example, if you are bringing in $10,000 but you are spending $4,000 in expenses, your net burn rate is $6,000

  • How much cash do you plan on using in the next 12-to-15 months?

Be conservative, but look at your monthly budget or the financial forecast in your business plan. Separately, look at actual cash expenditures as well as the cash in (sales) and cash out (expenditures).

  • What stage is your business?

If you’re a start-up, or ramping up your business and going to have big expenditures, that’s different than being in the middle of a more-established place.

  • How long will it take you to get more cash?

For many businesses, this is an unknown factor. Getting a loan from a bank, if they are willing to lend, can take several months. It usually takes at least a month to find a bank who might be willing to lend money and another month to fill out the paperwork. That’s contingent on already having a bank-ready business plan and an already established relationship.Shelton says pitching and presenting to potential angel investors takes significantly longer, usually at least six months or possibly nine months to a year.

5. Consider your borrowing options.

You don’t want to have to borrow money when you desperately need it. You want to borrow money before you anticipate you might need it, or at least have a good enough financial footing to be able to secure a line of credit or a business loan. Stephen L. Nelson a CPA in Redmond, Washington, offers some tips on how to forecast 12 months out using excel workbooks.

Shelton’s advice is to “Seek cash when you are in a position to explore options and negotiate from strength.” Then ask yourself: Can you still operate if your funding disappears?

6. Consider alternative funding options.

Besides traditional term loans, you may consider opening a business credit card or a business line of credit. There’s also equipment financing and grants for small business owners. If you have less than perfect credit or if you need money quickly as a business owner, a short-term loan may you be your best option.

By stress-testing your business’s finances and proactively planning now, you may help mitigate potential problems down the line.

Keep your customers by supporting their healthy lifestyle changes

Featured Stories | February 15, 2019 |

If you own or run a food or restaurant business, you know how food trends may boost sales. While some trends last for a few weeks and are simply fads (fondue, foam, and food with added caffeine), others become more mainstream and last a lifetime (sushi, huevos rancheros, or anything organic). In urban areas, healthy trends remain important for much of the world’s population. This is especially the case in the first few months of the year as people work toward achieving their New Year’s resolutions.

Here are five healthy food trends data shows are likely here to stay, as customers have purchased an increasing number of these products in recent years:

1. Faux Meat Offerings

As the world becomes more environmentally conscious, alternative protein sources have become more popular. Both startups and established companies are perfecting ways to make faux meat tastier. All of which is helping to fuel this trend. There are two leading providers of high quality and tasty faux meat in the United States, Impossible Foods who makes the Impossible Burger, and Beyond Meat. These products have already gone mainstream. The Beyond Meat Burger is now available at all 469 TGI Fridays restaurants in the United States. For business owners, faux meat is easy to cook and easy to substitute into your existing dishes.

2. Hemp and CBD products

As marijuana has been legalized in nine American states, other products derived from the marijuana plant that don’t contain psychoactive or mind altering substances are now being incorporated into food products because of the potential health benefits they offer. You can incorporate CBD oil into a variety of products ranging from coffee to cookies to juice to tea. Treats made with this oil are known to be stress and anxiety relieving. Hemp has several properties considered beneficial to health, including its ability to balance hormones, improve mood, and assist with both pain and sleep. Even large chain stores like 7-11 are joining in: hemp-derived CBD products are now available in up to 4,500 stores.

3. Seaweed and other deep sea snacks

The oceans are rife with plant life consumers are finding both tasty and nutritious. As harvesting methods have improved, so have their snack byproducts. Healthline reports that there are many benefits to consuming seaweed snacks, including that they:

    • Are a good source of vitamins and minerals, including iodine and tyrosine.
    • Contains a variety of antioxidants.
    • Provide fiber and polysaccharides to support gut health.
    • May help lose weight by delaying hunger and thereby reduce weight.
    • May reduce heart disease risk.

If you own a restaurant, you can easily add some crispy seaweed snacks to your menu as a starter. And if you own a store, stocking seaweed snacks is as “simple” as creating some extra counter space. The Japanese have been seaweed aficionados for centuries.  So, if this trend is anything like sushi…well, it’s not going away anytime soon.

4. Fermented foods

Whether you’re a fan of Korean kimchi, new age kombucha, or good, old-fashioned American pickles, fermented foods are likely here to stay. Filled with probiotics to help make diners’ guts strong, fermented foods make for tasty side dishes, replacing foods like fries. Another benefit of fermented foods is that they are easy to make and may be stored for long periods.

5. Plant-based frozen treats

As dietary restrictions around New Year’s resolutions can curb traditional dairy ice cream consumption, chefs are finding other natural ways to create frozen desserts. Instead of classic milk-based ice cream, these chefs are using ingredients like plant-based milks and frozen fruits are sweetening frozen treats and not sacrificing taste! Here are nine dairy free vegan friendly recipes to get you introduced to the world of vegan frozen treats.

As a food or restaurant business owner, you can be inventive; you can test out a new recipe based on these emerging trends without taking on much risk. If it sells out quickly, you know your customers want it. And while fads like juice cleanses may come and go, these emerging trends may make your offerings more appealing to customers throughout the year.

3 Issues Women-Owned Businesses Should Be Watching Closely

Featured Stories | February 11, 2019 |

For women-owned businesses, there are three potential challenges to keep in sight as we move throughout the year.

1. Continued interest rate hikes

The Federal Reserve has maintained a steady course of raising interest rates to keep pace with economic growth. The Fed hasn’t made any firm commitments – yet.  But, further adjustments to the federal funds rate may be on deck for later this year. That could be costly for female business owners seeking financing.

Women already face a tough business lending environment. According to the latest Private Capital Access Index (PCA Index) from Dun & Bradstreet and Pepperdine Graziadio Business School, just 18 percent of women entrepreneurs were able to get bank loan financing during the third quarter of 2018. Fifty-seven percent of women said the current business financing environment is hindering their business growth, compared to 42 percent of all business owners surveyed.

Twenty-four percent of women said additional rate hikes would restrict their growth further.  In addition 15 percent believe that rising rates would make raising capital more difficult. Women entrepreneurs who are considering a loan in 2019 should be watching Fed policy and rate movements closely. Additionally, they may want to explore bank loan alternatives, such as revenue-based financing or factoring to meet financing needs.

2. Midterm election results

The 2018 midterm elections resulted in some historic wins for female lawmakers, with nearly 120 women in Congress this year. That could be a boon if newly elected senators and representatives promote initiatives designed to advance female-lead businesses.  Business owners should keep their ears open and listen out for new grant and lending programs or policy shifts that increase the number of government contracts awarded to women are on the horizon.

The midterm elections may also have a broader impact for all business owners in terms of how Congress may shape trade, tax and healthcare policy moving forward. Businesses may still be adjusting to the latest round of tax and healthcare reform but the possibility of further changes should be firmly on their radars. The imposition of new tariffs could also result in higher operating costs for businesses that rely on imported goods.

3. Changing economic conditions

While the economy is still going strong, 2019 may bring a slowdown in the pace of growth. That, in turn, could directly affect business owners, particularly women.

According to the Private Capital Access Index, women business owners are more likely to struggle with cash flow compared to other businesses. Twenty-eight percent reported issues with receiving payments from customers, versus 23 percent of small businesses overall. A slower-growing economy could raise that figure higher if vendors or customers are sluggish in making payments because they’re dealing with cash flow issues of their own.

As we move through 2019, women business owners may want to revisit their invoicing and payment policies. Shortening payment terms, imposing late fees or accepting a broader range of payment methods could help speed up payments and avoid cash flow lags. Being prepared for these kinds of bumps can help make 2019 a smoother, more successful year for women-owned businesses.

Get Your Construction Business Ready for the Spring

Featured Stories | February 4, 2019 |

If you’re a contractor or own a construction business, you’ve likely been wondering what the this year will bring in terms of revenues and opportunities for growth. While many forecasts are calling for a slight economic slowdown in 2019, construction starts are still expected to hold relatively steady. As you look ahead to warmer months, here are three things to review as you prepare to ramp up your business this spring.

Update your tech

Smart technologies, AI and automation continue to expand their influence on the construction industry. Some new opportunities to update your business technology include:

  • Streamlining project management by using cloud-based solutions.
  • Utilizing drones for site planning and survey data enhancement.
  • Investing in smart safety equipment, such as wearables to track worker movements and fatigue levels.
  • Updating your inventory tracking software to reduce materials waste.
  • Using building information modeling software to streamline project design.

While some of these options are more hi-tech (and big-budget) than others, if you run a smaller firm, consider tech upgrades that can deliver a solid return on investment without a large outlay of cash. For example, updating your company’s website is something you may be able to do for a few hundred dollars, and up-to-date information and a fresh look might help attract new customers.

Review expenses and pricing

Construction materials didn’t get cheaper in 2018. Through July, prices had risen by nearly 10 percent over 2017’s figures, according to Associated Builders and Contractors. With uncertainty surrounding tariffs and foreign trade policy, materials such as lumber and fuel might become more expensive.

Higher prices means a higher cost of doing business and a potentially smaller profit margin. When planning for the busy season, consider how rising prices may impact revenues and cash flow, in both the short- and long-term.

Specifically, think about whether you’ll need to adjust your pricing to accommodate a jump in material costs. Would a price increase allow you to remain competitive in your local construction market? How would that price increase be received by clients? Will you enhance the value you provide as your rates rise?

At the same time, look for areas where you can reduce costs. Reach out to suppliers to ask for a discount or renegotiate terms. Recycle and repurpose materials whenever possible. Consider whether it makes sense to keep maintaining older equipment or replace it with something newer to reduce repair and maintenance costs. These kinds of changes may add money back into your cash flow and create a healthier bottom line.

Assess your capital needs

With interest rates projected to rise again this year you may want to pursue financing sooner instead of later. The lower the rate you’re able to lock in, the less your financing will cost over the repayment term.

Get clear on your needs and what type of financing may work best. For example, you may want to buy a new fleet of work vans or invest in a new backhoe. Or, you may just need cash to cover everyday operating expenses during the winter months if that’s your slower building season. Equipment financing might be more appropriate in the first scenario, while a working capital loan may be better suited for short-term funding.

Remember the ROI and the overall cost when considering financing for your construction business. Before taking out a $1 million equipment loan or a $100,000 working capital loan, estimate the potential payoff, either in preserving cash flow or increasing revenues.

You also need to be sure that the payments for an equipment loan, or any other type of financing, fit your business budget. And of course, review the interest rate and fees charged by different lenders to help you secure the best deal.

Want a Better Credit Score? Put Banking and Credit Card Alerts to Work

Accounting & Taxes | October 24, 2018 |

Staying on top of your personal and business credit scores is important if you plan to apply for business financing. Setting up banking and credit card alerts can make the job easier.  Better still, it can also potentially lead to an improvement in your credit rating.

If you’re not already using banking and credit card alerts to your advantage, here’s what you need to know.

How Alerts Can Help Improve Your Credit Scores

Personal and business credit scores are calculated differently.

Your personal FICO score, for instance, is based on payment history, amounts owed, length of credit history, types of credit used and new applications for credit. Business credit scores focus on different factors. The Experian Business Credit Score looks at your credit obligations to suppliers and lenders, legal filings involving your company and public records. Dun & Bradstreet’s PAYDEX Score is determined by how well your business pays its bills.

While personal and business credit scores can measure different things, alerts can help you stay on top of both by encouraging you to be more conscious of your accounts and credit activity. When you’re paying more attention to your credit, you may become more intuitive about what can help or hurt your score. (That’s a good thing, considering that 72 percent of business owners don’t know their business credit score, according to a Manta survey.)

Getting Started With Banking and Credit Alerts

Your bank and credit card company may allow you to set up many different kinds of alerts or notifications. When you consider the things which are most likely to impact your credit scores, specific alerts may prove useful:

  • Bill due date notifications
    Payment history is the central factor in influencing your PAYDEX business credit score; it also carries the most weight for personal credit scores. Set up bill payment alerts to help you avoid late or missed payments, which could negatively impact your credit score. Even better, ensure you pay your bills on time by pairing alerts up with automatic bill payment through your bank.
  • High credit card balance notifications
    After payment history, your credit utilization is the next most important factor for scoring personal credit. Credit Utilization is the percentage of your total credit line that you’re using. Carrying high balances or maxing out your credit cards works against you. Set up an alert to notify you when your balance hits a certain threshold.  This may help you put the brakes on spending.
  • New transaction alerts
    Fraud can affect both your personal and business credit scores if someone steals your credit card or taps into a line of credit you’ve opened and runs up a balance. An easy way to help combat that is to set up an alert to let you know when a new debit or purchase transaction posts to your bank or credit card accounts.

Remember to Check Credit Regularly

Checking your own credit report won’t hurt your score.  So this is something you should do at least once per year, if not more often. Review your credit to look for things that alerts might miss — a new account opened in your name that you don’t recognize or a credit reporting error that might be hurting your score. If you spot an error, dispute it with the credit bureaus reporting the information. Doing so could get the information corrected or removed, giving your credit score a lift in the process.

Looking for other ways to improve your credit rating?  Check out these articles.

Six Business Financial Housekeeping Tasks to Get Done Before Year End

Accounting & Taxes | October 16, 2018 |

There may be several weeks left in the year before you officially close the books and shift your focus to next year, but getting a head start on your financial housekeeping tasks can ensure you end this year on solid financial footing — and start the next one with a plan to succeed. Here are six business tasks to complete before you ring in 2019.

Check your retirement plans

If you don’t have a self-employed retirement plan, there’s still time to establish one, and make contributions to it. In turn, you may also find opportunities to reduce your tax burden. As Forbes explains, a sole proprietor who has a solo 401(k) in the 2018 tax year may be eligible to contribute up to $60,000 to it (based on net business income, and the business owner’s age).

If you prefer a retirement account with little costs and administrative burden, consider establishing a self-employed IRA (SEP IRA). Many providers allow you to complete account set up, funding and management entirely online.  And, you may be eligible to contribute (the lesser of) 25% of your business income, or $55,000, in 2018.

Meet with your accountant (or find one)

If you don’t have consistent contact with your accountant, set aside time to discuss your business’s current financial reality.  You should also discuss  your business goals, future plans and anticipated challenges for the remainder of this year, and next. If possible, schedule the meeting to take place at least two months before year-end.  Doing this will give you enough time to act on any recommendations for optimizing your finances before this year ends.

When you meet, let your accountant know of any additional financial moves you are considering that could have tax ramifications.  Things that could fall into this category include buying or selling new equipment or assets. Beyond the numbers on your financial statements, ask your accountant for any recommendations to improve or optimize your business finances, based on the current and future plans you’ve shared.

Confirm your estimated payments are accurate.

If your business is a sole proprietorship, partnership or S corporation, the Internal Revenue Service says you may be required to make estimated tax payments if you expect to owe $1,000 or more when you file your annual tax return. Corporations have to make estimated tax payments if they expect to owe $500 or more when filing their tax return. (Depending on your business, you may also be responsible for payroll, sales, and excise taxes).

If you picked up new clients or sales were stronger than expected, you may owe more tax than originally estimated. Ideally, your quarterly estimated tax payments are made in equal increments.  But the IRS does put the onus on taxpayers to estimate income as accurately as possible to avoid penalties.  They also expect you to ensure it remains correct based on business or tax law changes that may impact it.

Confirm tax paperwork for independent contractors you’ve hired.

If you’ve hired independent contractors over the course of the year, the IRS requires that you have their completed Form W9 (and that you keep it on file for at least four years). Sites that make it easy to hire virtual help also make it simple to hire contract help.  However, they can also make it difficult to keep in touch with contractors who are several states (or countries) away.

Regardless, the IRS also states that employers who pay an independent contractor $600 or more over the course of one year “may have to file Form 1099-MISC, Miscellaneous Income, to report payments for services performed for your trade or business.” Allow yourself the time to collect the paperwork you need from contractors so you’re prepared to issue the Form 1099-MISC tax forms. Note that you may be required to send them for payments by late January 2019.

Conduct an employee satisfaction survey.

Employee engagement may not seem financial in nature — until you consider the impact that disengaged employees have on business productivity, customer experience, and culture. Experts at Villanova University’s School of Business report that increasing your investment in employee engagement efforts by just 10% can yield $2,400 in profit (either directly or indirectly) from each employee, each year. Engaged employees are also 87% less likely to leave their jobs.  And, having engaged employees may reduce costs associated with employee turnover, hiring and training.

Take a pulse on employee engagement in your company with a basic online survey tool and questions that address what consultancy firm Deloitte says are the five pillars of employee engagement: Whether employees feel their job provides opportunities to do meaningful work, involves hands-on management with positive coaching, guidance and support, a positive work environment and culture, and trust in leadership.

If you find that you have engagement issues, your survey can provide the insights you need to address issues.  Once you know where problems may lie, you can work to improve employee productivity, engagement and satisfaction next year.

Organize your receipts and financial statements.

You have several months until tax season officially arrives.  But, the earlier you compile the receipts, mileage logs and cancelled checks you’ll need to support business-related tax deductions and credits, the less you’ll have to scramble as tax season approaches. If you rely on a bookkeeper or accountant to prepare your business tax return, ask his preference for how you should organize and transfer tax-related documents, to streamline the process (and better manage the billable hours you’re charged for their tax preparation services).

5 Ways to Free Up Capital with Smarter Purchasing

Featured Stories | September 12, 2018 |

Part of running a business means spending on inventory, goods, supplies, capital equipment, IT systems, communications, and services. Each month, these necessary expenses means money out the door, and the more you spend, the less cash you’ll have to put towards other strategic initiatives.

By spending less in your regular purchasing, you may end up with more money to invest elsewhere in your business. One way to cut fat — not muscle — by getting smarter about your procurement operations.

Revisit vendor relations and strategies

Habit can be a great tool for efficiency, but may also contribute to sloppy operations. Reevaluation of suppliers is standard procedure in quality control purchasing. Consider the same approach in reevaluating your vendor relations, including:

  • Key suppliers may have increased pricing over time, considering your account a “safe” one.
  • New alternatives, either from existing vendors or competitors, might satisfy your needs at a better cost, or you might find advantageous quantity discounts.
  • Some suppliers may offer vendor-managed inventory to hold products in a separate part of their warehouse. You don’t pay until you take an item to fill a sales order. You get the advantage of lowering inventory investment while maintaining fast availability.
  • On-time delivery, financial stability, quality of goods, and service levels also may affect the total cost of purchasing. Vendors that ship defective items cause you to lose time in returns and miss sales opportunities.
  • A company with warehouses closer to you may be able to provide rapid response to your inventory needs.
  • Between two vendors with similar pricing, the one that it is easier to do business with is the one that is more likely to save you money.

Split core and convenience ordering

Vendors have two rough categories of goods and services: core and convenience. Core offerings are items fundamental to a vendor’s business. Convenience items aren’t a mainstay but might command higher prices and margins because customers don’t want to go to other sources.

For example, an auto parts business with spark plugs, alternators, and mufflers as core items might have for convenience bolts and non-specialized tools. When you buy brake pads, you might remember you needed a 10-millimeter wrench and pick it up there rather than travel to another store.

Convenience buys may make sense if they are a one-time expense, or the time to research a lower price might be better used differently; however, if you need something regularly, buy it from a vendor for whom it’s a core item that must be competitively priced. Better pricing will pay off in the long run.

Cut waste

Take a step back and examine your purchasing strategies. Anything you buy should directly support corporate strategy. If someone in your organization can’t adequately justify a purchase, it shouldn’t be made.

To help cut waste, rationalize inventory levels; only have enough on hand, or quickly available, to cover seasonal, cyclical, or peak demands. At the same time, levels should be as low as possible to achieve these goals. The less money tied up in inventory, the more is available for other uses.

Waste happens in other spending areas, too. Considering having a service perform a full utility audit to see where there may be incorrect billing or waste in electric, water, or sewer. Many consultancies perform the analysis for free and make their money through a percentage of the savings they help you gain (which suggests how often businesses pay more than they should).

Benchmark spending

Benchmarking is the practice of comparing performance to a reference to see how your organization does by comparison.

What seems like a normal level of spending in any area, whether it’s inventory, computer technology, or legal services, may be significantly off from what your peers do. There may be good reasons your expenses in a given area are higher than competitors, but it may also be a signal of spending too much.

There are two aspects to benchmarking. The first is to know and calculate standard metrics widely used in procurement. They include the average cost to process a purchase order, percentage of suppliers that provide 80 percent of spending, the percentage of purchasing budget that is department operating expenses, and cost reduction savings as a percentage of total purchasing spending.

The second is getting access to data from a wide array of organizations in your industry to see how you stand. Get access to the information through benchmarking tools from third-parties, whether analyst firms or professional organizations. The tools are software you use to compare your metrics to the subset of your industry that comprises your peers.

Improve your negotiation skills

Most people in business, including those who work in purchasing, think they are good at negotiating. While they may have natural talent, there are common misconceptions that may work against you. For example, letting the other side go first means you may give up control of the process and be unlikely to get something positive in return. Or you may assume that the other side saying no means the end of a negotiation, when it may be a chance to continue the process and change someone’s decision.

Even people with strong natural aptitude need training to become truly effective in negotiation. If your purchasing people haven’t had training, get it for them. The return on that investment may be immense.

Inventory Turnover Ratio: Why keeping track is very important for small business owners

Featured Stories | September 10, 2018 |

No matter what type of small business you run, managing your inventory correctly can be extremely difficult.

If you run a restaurant that serves perishable foods, if you order too little inventory your customers will be dissatisfied and you won’t fulfil your potential in terms of how many sales you generate. But if you order too much food, you will find yourself with space wasted, money wasted and food wasted.

Understanding your business’s inventory turnover ratio can help you more accurately manage your inventory. To understand what the inventory turnover ratio is, it is necessary to break down this term to its components:

  1. Inventory: The goods available for sale and raw materials used to produce goods available for sale. Inventory represents one of the most important assets of a business because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company’s shareholders.” (Investopedia)
  2. Turnover: “An accounting term that calculates how quickly a business collects cash from accounts receivable or how fast the company sells its inventory.” (Investopedia)
  3. Ratio: “The comparison of [two] or more quantities which indicates their relative sizes.” (ThoughtCo)

Thus, your inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period. It measures how many times a company sold its total average inventory dollar amount during the year. Therefore, a company with $20,000 of average inventory and sales of $100,000 effectively sold its inventory five times over giving it an inventory turnover ratio of 5.

Take a 360 degree view of your business when making inventory decisions. Let’s say you own an auto repair shop that focuses on giving your customers new tires. There are many factors you might consider when making new tire orders:

  1. Suppliers: You must consider if there will be deals or specials from your suppliers given at different times of the year as well as the delivery speeds.
  2. Storage: You must know how much space you have to store your inventory.
  3. Waste: You must consider what percent of tires you receive will be duds that you will have to ship back to the supplier.
  4. Sales estimates: You must look at past sales data to determine which months of the year are most popular for people to purchase new tires.
  5. Discounts: You must factor in if you will offer sales or discounts to your customers.
  6. Timelines: You must evaluate which types of tires are more popular at different points of the year (e.g. snow tires vs. all-season tires.)
  7. Numbers: You must also consider what percent of your customers need one tire replaced (e.g. for a flat tire) rather than changing all four tires on their vehicle.
  8. Growth: You must calculate how fast (or slow) your business is growing.
  9. Trends: You must calculate market trends (e.g. if big winter tire companies are advertising their services, more of your customers may ask for these.)
  10. Competition: You must figure out what your competitors’ strategy is (e.g. if a shop down the road offers to change one tire for $30, you may want to focus your business on selling four-tire packs.)

There are many methods to making sure that you’re inventory is working for you. Perhaps the most important method is called First In First Out, or FIFO, if it is abbreviated. As Casandra Campbell writes about it for Shopify, “It means that your oldest stock (first-in) gets sold first (first-out), not your newest stock. This is particularly important for perishable products so you don’t end up with unsellable spoilage. It’s also a good idea to practice FIFO for non-perishable products. If the same boxes are always sitting at the back, they’re more likely to get worn out. Plus, packaging design and features often change over time. You don’t want to end up with something obsolete that you can’t sell.”

Another important principle to remember is to set “par levels.” Campbell writes:

“Make inventory management easier by setting ‘par levels’ for each of your products. Par levels are the minimum amount of product that must be on hand at all times. When your inventory stock dips below the predetermined levels, you know it’s time to order more. Ideally, you’ll typically order the minimum quantity that will get you back above par. Par levels will vary by product based on how quickly the item sells, and how long it takes to get back in stock.”

Furthermore, remember the 80/20 rule often still holds true: 80% of your business comes from only 20% of your inventory, 20% of your customers, and 20% of your suppliers; however, knowing this, remember to have alternate suppliers ready in the event one of your key suppliers messes up an order or is out of stock.

Keeping an accurate count of your inventory, and correctly predicting your future needs are excellent ways to save your business money. Wasting money on unused inventory is costly and can easily be prevented. Knowing your inventory turnover ratios for each specific item that you require to operate your business are excellent ways to make sure you properly account for your inventory, saving your business both time and money.

Growing your employees as your company grows

Featured Stories | September 7, 2018 |

People who apply to work at Crank & Boom Ice Cream Lounge, an ice cream store in Lexington, Kentucky, have to answer two questions that aren’t on most employment applications:

  • What is your absolute dream job?
  • What are your hobbies/passions?

Toa Green, owner of Crank & Boom, believes this sets the right tone early on, attracting people who are ambitious and alerting applicants that the company cares about their development.

“I like to paint the picture for our team that their time with us, at least for most of them, is a path to something else,” she says in an interview with Inc. “People with big dreams and strong passions tend to be the most successful in our company. They know how to work hard for something. ”

Provide Workers with Opportunities

Growing employees as the company grows can be a critical task for any business owner. After hiring ambitious workers, the key is to provide them with opportunities. Big Ass Fans, which designs and constructs industrial cooling fans and lighting, likes to hire people who have a curious nature, and then rotate them through different units within the company so they can see what jobs appeal to them.

“I also believe in hiring people for their next job,” says CEO Carey Smith.

People don’t need to change jobs to grow, though; “stretch assignments” may be a way for employees to develop new skills.

“Don’t think about picking the most qualified person for the assignment,” says Dan McCarthy, Director of Executive Development Programs at the University of New Hampshire. “Instead, think about picking the right developmental assignment for the person.”

Ask Forward-looking Questions

A smart business owner helps employees grow by understanding what they want. Ask questions that encourage employees to think ahead like:

  • Are there any other jobs in the company that look particularly enjoyable and interesting to you?
  • What experience and skills do you have that you think you’re not able to use in your current position?
  • Which of your current skills would you like to improve?
  • Are there any new skills you would like to develop?

Invest in Your People

Investing in employee training is a significant factor in retaining workers and getting the most out of them. A survey by the Society For Human Resource Management found that 86% of workers said their job satisfaction was highly related to their company’s commitment to their professional development.

“When you strategically invest in employees, you attract and keep all the best candidates, and you also build a strong work culture unafraid of innovation, change, failure and success,” says entrepreneur William Craig. “Employees take the bull by its horns and run with ideas, instead of running away from problems.”

If your employees aren’t growing, they’re moving backwards — as may your company. Investing in employee development may put both in a position to thrive.

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