Should I Use Purchase Order Financing? When Does It Make Sense?

There is a great deal of misinformation and erroneous assumptions around purchase order financing. You know what a purchase order is but how do you finance it? This is so-called asset-based lending but a purchase order is not an asset. In short, your question is, “should I use purchase order financing and, if so, when?”

Scenario

You are ecstatic that you just landed a huge order from a corporate customer you have been chasing for months. You and your team celebrate this seminal moment in your company’s history. The next day, however, you feel a pit in your stomach. You realize the money your firm has in the bank and the small credit line you can tap are not enough to fulfill even half of this order. You run through the scenarios. You could cancel the order, but you know you will not get an opportunity like this again. You could divide the order in half and wait on pushing the second half until you get paid for the first. Although this is not as poor an option as cancelling, it is not good. You could request a deposit or require that the order be pre-paid, but you remember that your controller already made this request. The response was that the firm would consider it in the future but not right now. You believe that they want to make sure your firm is viable enough to handle orders of this size.

Since you are hitting a mental wall with your options, you convene with your team to brainstorm. You discard accounts receivable financing because you would have to work out an arrangement with your bank to exclude the A/Rs from this customer. That may be doable, but you will not actually have a receivable until you invoice your customer AFTER the product comes in from the manufacturer. Your vice president exclaims, “I wish we could finance the purchase order itself!” Something in that statement resonates with your controller and she googles “purchase order financing” and voila! You discover it does exist.

What exactly is purchase order financing?

Before we go any further, it is important that you understand both what purchase order financing is and what it is not. Purchase order financing is essentially an advance provided to you on a specific customer’s purchase order to purchase readily available inventory or manufactured goods from a supplier. Hence, this is potentially a viable option if you are a reseller or distributor or if you outsource all of your manufacturing. Typically used for a sizable order, your PO financing firm will either advance funds directly to your supplier / manufacturer or issue a letter of credit or payment guarantee to release funds when the goods are delivered. The PO financing then collects payment directly from your end customer, thus acting as an invoice factoring firm.

Basically, the PO financing firm acts as a substitute for you, ensuring payment to the supplier / manufacturer so that you can fulfill your order. PO financing is not a general inventory financing option for you as it does not allow you to buy and hold inventory to sell later. It requires a specific purchase order for a specific customer. Your PO financing firm will need a copy of both the signed PO from your customer and your signed purchase order to the supplier.

What PO financing provides

The PO financing option allows startups and other rapidly growing or cash-restricted firms to accept large, new orders for their products from credit-worthy customers. According to Entrepreneur magazine, “Purchase-order financing can be beneficial to small businesses because it relies mostly on the company that has placed the order with the startup, and not the startup itself.” Although most PO financing firms require the goods to be shipped directly to the end customer, there are some that will allow shipment to a third party warehouse and even to your facility for light assembly, packaging and distribution. In these cases, according to Entrepreneur, “purchase-order financing often covers a large portion of the requisite supplies (needed to produce those goods), and sometimes even all of them.” Furthermore, the PO financing process is often much easier to navigate – and more straightforward – than traditional bank financing.

How does it work?

  • The PO funder obtains a copy of your customer’s purchase order and your purchase order with the supplier / manufacturer. After analysis, the PO funder agrees to finance your customer’s purchase order.
  • The PO funder sends payment or issues a letter of credit directly to the supplier or manufacturer.
  • The supplier receives the letter of credit or outright payment from the PO .
  • The supplier fulfills the order and ships the goods directly to the customer specified in the purchase order.
  • The customer receives the order from the supplier and receives the invoice from you.
  • The customer pays the invoice directly to the PO funder. If the customer pays immediately, the PO funder accepts the payment, takes out its fees, then remits the remaining gross profits from the sale to you. If the customer has terms (typical for large corporations and government entities), the PO funder factors the invoice – buys the invoice at a discount – and provides you with the funds, less the discount.
  • The customer remits full payment in 30 days to the funding company. The funding company releases any reserves to you that had been held.

If your company does light manufacturing such as assembly, printing and/or packaging, additional steps will be necessary as the inventory and supplies will be delivered to you then you will deliver the finished products to your customer. This increases the risk to the PO funder and hence, increases the fees.

Benefits for Your Company

If your customer has a strong credit history and has a record for prompt payment, and if you have a reputable supplier or manufacturer, your lack of business longevity or your weak credit profile will matter little, if at all, to a PO funding company. As outlined above, only the administrative components of the transaction, the purchase order and later, the invoice, rely on you.

When asking yourself, “should I use purchase order financing”, consider this. According to Forbes, “purchase order financing provides “sufficient working capital to cover payroll and start-up costs for a new contract.” This funding can also provide you with negotiating leverage to obtain better terms and pricing from suppliers. “Taking the calculated risk of a working capital loan that enables the small business to accept a job and grow is often critical to succeeding in government contracting” and other arenas.

Risks for the Funding Company and Associated Fees

In purchase order financing, there is no interest rate quoted. Instead, you pay a discount rate and fees. This means that you receive less than 100% of the amount the customer pays on the invoice, typically 1.5% to 6% less or, put another way, 98.5% to 94% of the invoice. This embedded interest rate captures the higher risk that purchase order financing typically has for the financing firm. The risks vary. The supplier / manufacturer may not deliver the product. (This risk is greatly reduced if a letter of credit is used.) Your customer could refuse delivery or refuse to pay because of issues with the product. Furthermore, your credit worthy customer could have financial issues. If you take delivery of the product, the risk is even higher as more could go wrong. Thus, rates for light manufacturers that process and repackage the inventory are generally higher, at least initially until a strong track record is created. The PO funder will not get paid in all these scenarios, which drives up the risk and hence, the rate.

The answer to the question, “should I use purchase order financing” is multi-layered. It depends on what type of firm you have, what your growth stage is, and what your current sources of funds are. Be aware of the risks but fully understand the benefits. According to Medium, if you can monetize your inventory by eliminating or reducing what you actually hold onsite, this will allow you “to sell more goods, grow the company, employ more people and feed more families.” Purchase order financing provides an asset-based form of working capital that, if used wisely, ultimately allows you to invest in your firm and its future.


5 Key Reasons to Forecast Your Cash Flow

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


Top 7 vacation destinations for small business owners to unwind

One of the most difficult aspects of running a business is having the ability to keep your creative juices flowing (didn’t being creative seem so easy when you first set out to start a business?!). Having the ability to think creatively can you help you solve problems and enhance and optimize processes. From coming up with new ways to keep employees and customers happy, to determining areas to save money, to dreaming up new business developments, your business success depends on your ability to continuously come up with innovative and creative ides.

One way to inspire creativity is to immerse yourself in new places. This could be as simple as taking a walk in the woods.  Or, it could mean going on a year-long round-the-world sabbatical.

For most business owners, reality means that a year-long trip is unfeasible. However, a week or two away from work can be a happy medium. Here are some of the top vacation destinations for small business owners to unwind:

San Francisco, California

There’s a reason why so many successful companies are started in and around San Francisco. This is a place with a “Yes” culture. Have an idea? Yes, there are people here who want to help you. A trip to San Francisco can feel like a trip five years ahead in the future; people here are today using the apps and gadgets that people around the world will use in five years time. Thus, it is a market researcher’s paradise. Plus, the beautiful surroundings in every direction mean that no matter if you’re going south to Santa Cruz, east to Lake Tahoe, or north to Muir Woods, you’re bound to get a heavy dose of Mother Nature’s goodness to stoke your mindset.

San Juan, Puerto Rico

In September, 2017 Hurricane Maria decimated the island of Puerto Rico. But since then, Puerto Rico has come back strong. In early 2018, The New York Times reported, “Dozens of entrepreneurs, made newly wealthy by blockchain and cryptocurrencies, are heading en masse to Puerto Rico this winter.”

Beyond the planned-but-not-yet-realized-crypto-utopia, tax incentives also have caused entrepreneurs to flock to this island. Whereas other places have coffee shop cultures as gathering spaces for entrepreneurs, in San Juan the entrepreneurs set up camp in hotels along the beachfront. Two of the most popular hotels for entrepreneurs are the Condado Vanderbilt Hotel and the AC Marriot, both located on the beach in the Condado neighborhood of San Juan. There’s no better place to mix business with pleasure.

New York, New York

If you’re an entrepreneur who has never been to New York, go there now. This is a city that was built for hustlers. People in NYC are always creatively thinking of the best ways to make their fellow citizens part with their dollars. The diversity of people from so many backgrounds gives New York a constant source of fuel on the fire. Each of New York’s five boroughs (Manhattan, Brooklyn, Staten Island, Queens, and The Bronx) has its own unique flavors, all driven by entrepreneurs, many of them immigrants or the children of immigrants. There are many popular hangout spots for New York City’s entrepreneurs to unwind at, but among the most popular are Toby’s Estate, a coffeeshop in Williamsburg, Brooklyn, and the Ace Hotel Lounge, located in Manhattan’s Flatiron District. If you’re looking to escape the city for some solitude, try the nearby Catskill Mountains.

Detroit, Michigan

In 2013, Detroit became the largest U.S. city to file for bankruptcy, which it exited in December 2014. But Detroit is a city that was built on the backs of entrepreneurs, most notably in the auto business. Yet it is the city’s musical underbelly where arguably even more innovation has occurred. From Motown and techno to jazz and punk, not to mention hip-hop, music entrepreneurs have long turned to Detroit for new ideas. With some of the best art museums in the country, from the Detroit Institute of Arts to the Charles H. Wright Museum of African American History, Detroit’s institutions were built to inspire you. And when you need a little R&R, visit Detroit’s excellent waterfront restaurant scene.

Cape Town, South Africa

If you’ve got frequent flier miles to spare, consider Cape Town. As the second largest and most Southern city in South Africa, Cape Town is in many ways the hub of where the rest of Africa gets its ideas from. Once you arrive, you’ll be shocked by many things.  First, the gorgeous scenery leave you in awe. Second,  the bargain basement prices on everything is something you’ve rarely encountered in other places. Third, the kindness and generosity of nearly everyone who you will meet along the way will be so refreshing. Africa is a continent that is on the brink of many major positive changes.  It will likely be able to leapfrog other continents, countries, and cities because it lacks existing infrastructure. Cape Town is the hub where much of the planning for a brighter future (literally, with electricity now spreading across the continent) for Africa is now taking shape. With high quality locations to lounge just about everywhere, try Clarke’s or the Loading Bay for both food and coffee that will inspire.

San Diego, California

You can get access to everything you need to make relaxation a priority, while still being inspired in San Diego.  San Diego is a small city with universal appeal.  San Diego boasts a comfortable climate (70 degrees all year long, so you can visit during any season!) and an abundance of nature.  No matter where you go in the city, you’ll find small business creating the backbone of the neighborhood, keeping each area unique…and full of inspiration.  From Old Town, which serves up great Mexican food along side a helping of California history to North Park’s ethnically diverse neighborhood full of indie coffee shops and art galleries. San Diego is also just a stone’s throw from Mexico, so shuttling across the border for the day is super-easy.  The local residents are laid-back, casual and extremely friendly.  All of this combined, makes it a lot easier to allow yourself to unwind – it’s simply the culture here!

Montreal, Canada

With a population of just over 4 million residents, Montreal is Canada’s second biggest city (second to Toronto). And, it is a hub for business, art, and culture.  It is the business center of Quebec and was named by Lonely Planet Travel guide as one of the “10 happiest places in the World”. As a metropolitan area, Montreal is refreshingly multicultural and its diverse mix of ethnicities are reflected through the city’s neighborhoods, each having it’s own flavor and unique aspects that can get those creative juices flowing.  A highlight of Montreal is its arts and culture scene.  Throughout the year, Montreal hosts the world’s largest comedy festival, film festivals, jazz festivals, firework festivals and more.  You can also find, throughout both downtown and in residential areas, art installations which pop up regularly.  Unique in Canada in that it is the only French metropolitan city, it will give you the opportunity to practice speaking a new language.  It also allows you to meet individuals from all around the world. It has even been described as being half Paris, half Brooklyn – making it (for some) the perfect city.

Remember, there are so many inspiring places on this earth, and these are just a handful. Wherever you decide to travel, make sure you don’t turn your vacation into a business trip! Put your phone down!  Make sure that you’re living in the present.  Absorb new cultures, ideas, and innovations to get yourself on the right track when you return from your journey.


Beyond the Exam Room: How a Top Chicago Cosmetic Surgery Practice Manages Payment for Care

Most cosmetic surgery practices operate far from primary care’s recurring billing models. Patients come and go and are often one-and-done, creating a practice that’s more transactional than built on repeat business. But, the care these surgeons provide is anything but transactional. It’s highly personal, often reflecting on a patient’s sense of self and worth.

With this in mind, how can cosmetic surgery practices keep payments as personalized as the care they provide while operating a transactional business model?

Lori Pascal is the office manager and patient coordinator for Dr. Thomas Mustoe and Dr. Sammy Sinno, two of Chicago’s most prominent cosmetic surgeons. Having spent over 17 years in patient coordination for cosmetic surgery practices and the past four-plus years managing Mustoe’s and Sinno’s, Pascal offers some insights to help other medical practices add a personal touch to their payment procedures.

“Patients don’t think of medicine as a business, but whether you’re a heart surgeon or a dermatologist, it’s still a business,” says Pascal. “If the practice isn’t well run, patients will pick up on that, and that’s what makes them feel less like a person and more like a transaction.”

Create a Structured Financial Policy

Pascal’s first recommendation for any medical office operating on a transactional billing model is to have a structured financial policy in place. “For our practice, this means having set procedures for how we present financial information, and we present that information in a highly transparent way,” says Pascal.

“Patients don’t get on a surgical schedule without a surgery deposit,” she says. “This policy prevents our surgeons from having gaps in their surgical schedule. The deposit is refundable. To cancel or reschedule, patients need to give us notice no later than four weeks before their surgery date. I’ve found that with windows shorter than four weeks, surgeons have less chance to fill those surgery times and we don’t want our surgeons to have holes in their surgical schedule.”

Without a structured financial policy, practices like the one Pascal runs might quickly be in trouble. “From an office standpoint, we have to think about how we’re going to create an efficient schedule for the physicians. We want to make the surgeons’ time useful, and that includes thinking about how many new patients can be seen on a weekly basis. A transactional practice like ours has people waiting for consults and surgery. If there weren’t any penalties, we’d end up with an empty flight which wouldn’t leave us in business very long. ”

But there always has to be room for leeway, and it’s not all about penalties and cancellations. Discussing financial information may make or break a transactional practice. Here’s how Pascal makes payments personal for patients while maintaining a high level of professionalism.

Making Payments Personal

In practices like the one Pascal manages, procedures typically cost thousands of dollars. Insurance rarely comes into play, which means the burden of payment rests with the patient.

“There has to be an appreciation that this is a lot of money,” says Pascal. “Naturally, having the wrong person discussing finances with patients could make a patient uncomfortable.”

At Pascal’s office, she’s the single point of contact for all financial discussions with patients. As the single point of contact, Pascal may also offer flexibility on a case-by-case basis.

“When people need a little bit of leeway, I’m the only one negotiating that flexibility. Being the single point of contact for finances helps the patient have a smooth surgical and in-office experience. Whether it’s receiving a final payment a few days later than our financial policy dictates or paying cash to save a bit of money, I’m always going to try to accommodate the patient.”

Pascal is committed to keeping a structured financial policy to maintain the human touch in the practice she manages. In Pascal’s office, patients and the practice are equally important.   This allows both to work towards the same goal: incredible outcomes that generate referrals because of the excellent work throughout the patient experience.


Inspiring Black Business Owners: Loretta Harrison, “The Praline Queen of New Orleans”

Overcoming a hurricane of a problem

For more than four decades, Loretta Harrison, “the praline queen of New Orleans,” has been turning sugar, cream, butter and pecans into savory treats.

She learned the recipe for pralines from her mother at age 8. Together, they made candy on Sundays for visitors to their home. It was a bustling place, filled with sweet smells and Harrison’s 11 siblings. “We didn’t have much money, but we had plenty of love,” she says.

In 1984, she became the first black person to own a praline shop in New Orleans. Loretta’s Authentic Pralines has become an iconic business, and Harrison is an iconic figure in the Big Easy. She appears often on local TV and radio shows, charming viewers and listeners with her positive, down-to-earth personality.

“You can’t tell the history of New Orleans without the history of pralines,” she says. “They’re like red beans, rice and gumbo!”

Her enthusiasm was tested, but not broken, by Hurricane Katrina, the August 2005 storm that devastated the city. It caused an estimated $125 billion in damage (not adjusted for inflation). Nearly 1,000 people died. More than one million people in the Gulf Area were displaced.

Looters and Leaks

Harrison suffered as well. Her house collapsed. Looters ravaged her store in the city’s French Quarter. A leaky roof ruined the warehouse where she cooked most of her products. The electricity, gas and water stopped functioning for weeks.

After nearly three months, she was able to reopen the store at the end of October 2005. It still wasn’t easy. None of her employees returned to the city. Her aunt and three sons pitched in to help where needed . Ever upbeat, she cheerfully describes this situation as “free labor!”.

It’s about having passion and a belief in your products. God will never put you in a position that you can’t handle. But you also need to seek wise counsel, and not be afraid to go up to anyone and ask dumb questions.

In the aftermath of the storm, tourists and even locals stopped coming to her store. Her business was buoyed by her steadfast belief that anything which can be destroyed can be rebuilt. She took immediate action, changing her business model to become a restaurant for reporters and emergency workers

“People weren’t buying a whole lot of candy, so we started serving lunch,” she says. “It was an opportunity to help my business, my city, and people who needed help. The city of New Orleans has been good to me, and taken care of me, and I just had to stand up and take care of it.”

She takes pride that her shop became a meeting place. “We lost a lot of people we love and we lost a lot of material things, but we pressed on — it was the only thing we could do.”

Passion and Belief

inspiring-black-business-owners-lorettas-authentic-pralines
Source: tripadvisor.com

After the storm, she had trouble getting a Small Business Administration loan, or the payment for her business interruption insurance claim for the $80,000 in business she lost during the three-month stoppage. Undeterred, she secured a $2,500 grant from a local small-business incubator. That allowed her to buy shipping supplies for the following Christmas season, expanding her online business and ability to service hotels and retailers.

Asked about her perseverance, she explains: “It’s about having passion and a belief in your products. God will never put you in a position that you can’t handle. But you also need to seek wise counsel, and not be afraid to go up to anyone and ask dumb questions.”

Even though Katrina happened 14 years ago, Harrison is reminded of the storm daily. She says while the business section of the city was repaired, the area around her home still needs renovation. When customers come in, especially tourists, they often want to talk about the storm. Ever chatty, she is happy to oblige, so she and her business will likely be tied to it forever.

In the past decade-and-a-half, the biggest challenge she’s faced is the inability to find workers who want to learn the art of candy making. “And it is an art,” she says. “We put ads in the paper, but people don’t stay; maybe the younger generation doesn’t appreciate this kind of art.”

That slight down note lasts only a few seconds. Harrison seems genetically wired to be upbeat. At the moment, Harrison and one of her sons are the company’s sole candy makers. However, she is confident that younger candy makers will appear soon. “I start positive, and don’t see a point in becoming negative,” she says.

And when she hires those new candy makers, Harrison says she will have more time to do what she loves best — create more types of candies. In particular, she takes delight in her twist to the New Orleans staple, beignets, a pastry made of fried dough. Her recipes have included praline beignets, crab beignets and the hamburger beignets.

“The new products are taking off,” she says. “When someone eats one of my beignets, I see how happy they are, and that makes me happy,” she says.

Check out this behind the scenes look into Loretta making her pralines


Source: WWLTV


Editor’s Note: Loretta’s story is one of a six-part series celebrating black small business owners throughout the month of February.  Check out the other inspiring stories in the series: Turning Shakespeare into Rap into Revenue, From Mechanical Engineering to Marketing Consultancy – Building Businesses Through Analytics, and Pioneering Metrics of Diversity and Inclusion.


Business Owners Share: How I Will Grow My Business This Year

To be more successful , business owners often look back at all they accomplished in the past year. What did they do well? What strategies and changes did they make that resulted in growth? And what should they consider doing differently in the coming year to reap even bigger rewards?

We asked small business owners what resolutions they’re making in order to build on their past successes, and this is what they told us.

1. Identify goals that affect your bottom line.

Looking back on 2018, Francis Rusnak of Windy City Solutions discovered it’s possible to set goals for external purposes that don’t necessarily move the business forward. He calls these kind of goals, “vanity goals.” These are designed primarily to look good on paper and impress others; however, he says, vanity goals aren’t nearly as important as “production goals,” which have a direct impact on the business’s bottom line.

For 2019, Rusnak resolved to maintain a 20% ROI on each house his company flips, rather than focusing as much on the total number of homes he flips.

2. Create year-long action plans for company goals.

As a business owner, it can be tempting to focus on short-term wins instead of focusing on big-picture goals throughout the year. Paul Davis, CEO of creative agency Paul Davis Solutions, LLC recommends putting consistent effort towards his firm’s annual goals. The key to achieving them he says is developing specific, measurable action plans for how to achieve them. If your goal is generating $1 million in sales, for example, it’s critical that you then determine what you need to do to attract that amount of business. That might mean making 10,000 sales calls over the next 12 months, or 40 sales calls each work day, he says.

In 2019, he resolved to make those big goals a reality by breaking them down into daily action-oriented tasks and tracking them.

3. Base business decisions on data and analytics, not gut-feel.

Many business owners develop a sixth sense about opportunities that may help guide their business. Matthew Ross, co-owner and COO of RIZKNOWS, which operates several internet properties, realized, “Sometimes I act ‘impulsively,’ just because I want to move on to the next thing.”

Though money does love speed, Ross has resolved to rely more on data and past performance metrics in order to aid business decisions.

4. Document standard operating procedures.

To be able to hand off tasks to others, it may be helpful to stop and document how certain tasks should be completed. Dustyn Ferguson of coupon and rebate site Dime Will Tellsays that until now, he didn’t feel his company needed to build standard operating procedures (SOPs) in order to get things done.

To grow beyond its current size, Ferguson now sees how documented systems and SOPs will be necessary for the company. “Our New Year’s resolution was to start creating standard operating procedures for the main areas of our business … which should lead to more growth, better organization, and overall better business processes.”

5. Reduce workplace interruptions.

The worst enemy of productivity is interruptions, says Cristian Rennella, CEO of el Mejor Trato. Throughout 2019, he intends to do something about reducing workplace interruptions in the form of needless internal meetings by banning them.

“The objective is to eliminate interruptions at work as much as possible,” he says, explaining that a 30-minute meeting takes up much more than just 30 minutes — there’s the prep time and the time needed to refocus post-meeting, says Rennella.

6. Create efficiencies by delegating.

Jason Lavis of UK-based Out of the Box Innovations Ltd. recognized last year that he was trying to do too much himself. “It’s impossible for my company to grow unless I start to delegate.”

For 2019 Lavis resolved, “To look at every aspect of the business and see if it can be taken care of by someone else. Doing this will free up time for me to win new contracts and plan for growth.”

We’re so far into the new year that yet. As a business owner, you still have time to shift your focus to accomplish your business goals and to help ensure you end 2019 on solid footing. Take some time to set resolutions for your business that inspire you, and then take time to think through your approach on how to make them a reality.

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Are Credit Card Cash Advances Bad? 4 Reasons to Think Twice About Using Your Credit Card for Cash

Do you use your credit card to make withdrawals for your business? If so, you might be making an expensive mistake.

Whether it’s a business card or a personal credit card, it’s time to think twice about using your credit card as a debit card. Here’s what you need to know.

4 Costs of Taking Cash From Your Credit Card

Withdrawing money via your credit card could be costly for these four reasons.

1. Cash Advance Fee

It costs more to borrow cash from your credit card than to make a purchase using your card because of what’s known as a “cash advance fee.” Depending on the terms in your agreement, credit card issuers could charge you either a flat rate fee or a percentage fee of the withdrawal amount — whichever is greater.

2. No Grace Periods

Like personal credit cards, business credit cards usually offer a grace period. A grace period is the time period between the end date of a billing cycle and your next credit card due date. Cash advance transactions typically do NOT have a grace period. Instead, interest begins accruing immediately upon withdrawal, resulting in a higher total interest charge on cash advances than you’d see on a purchase transaction.

3. Higher Borrowing Rates

Another expense to consider with a credit card cash advance are the potentially higher interest rates. Interest rates on cash advances may be higher than the rate charged for purchases on the card. Refer to the fine print in your credit card agreement or contact your card issuer for more information.

4. Potential Unlimited Personal Liability

Does your business credit card have a personal liability clause?

If you’ve provided a personal guarantee for your business credit card, you’re personally on the hook for paying off that credit card debt if your business fails. That debt could include all the cash advance withdrawals from that credit card. This is the case even if the way you’ve incorporated your business (for example as an LLC) protects your personal assets against business litigation.

How to Calculate Your Credit Card Cash Advance Cost

If you’re wondering just how much a credit card cash withdrawal could cost, here’s how to figure it out

  1. Calculate the initial cash advance fee based on the withdrawal amount. For example, the fee on a $3,000 withdrawal from a card with a 3% cash advance fee is $90.00.Next, calculate the interest charges. Divide the annual percentage rate (APR) for cash advances on your card by 365. Then multiply that figure by the number of days you’ll carry the balance and the withdrawal amount. Based on the example above, a $3,000 advance at an APR of 21% for seven days, the calculations look like this: 21/365 = 0.00274 daily interest x 7 days = 0.019178 x $3,000 = $75.53.Add the interest charge to the credit card advance fee for a total cost of $165.53 (90 + 75.53) in charges and interest to take a $3,000 cash advance for seven days.

Alternatives to Business Credit Card Cash Advances

Luckily, there are less expensive ways to borrow money for your business.

  • A business credit line gives access to funds as needed, and you’ll only pay interest when and if your business uses it.
  • Short term loans and equipment financing often have comparatively low rates, especially when they’re secured against collateral such as real estate, equipment, or machinery.
  • Other business financing options include borrowing against your accounts receivables and invoices through revenue-based financing or invoice factoring.

Look into the other business financing options available to you before taking a credit card cash advance. Doing so could save your business a bundle.


How Concierge Physicians Keep Costs Simple

From new resolutions to new insurance plans, choices abound for the medical community when it comes to determining how to best serve their patients. Some physicians, however, eschew traditional insurance-based billing and opt for simplified concierge/direct primary care models. By eliminating the heavy administrative support insurance billing requires, concierge physicians may be able to provide a higher level of care.

Simple Costs, a Simple Goal

Dr. Alex Lickerman spent 21 years as a primary care physician before switching to a membership-based, concierge model. While his three-year-old concierge practice doesn’t accept insurance, it provides care the same way through a membership fee-based model. “We bill patients directly via a monthly membership fee,” says Lickerman. “All our services are covered by this fee. Meaning, whether a patient sees us only once a year for an annual exam or once a week for an acute medical issue, our fee is the same.”

Through this simplified billing model, Lickerman achieved a simple goal: To provide a higher level of care for a concentrated patient base.

“Our electronic medical records have transformed from insurance billing documents back into electronic medical records,” Lickerman says. “We’re no longer incentivized to bring patients in for visits they don’t need because we don’t get paid per visit. Our incentives are finally what they should be: take great care of patients, so they remain healthy and happy and want to stay with us.”

As a result, Lickerman’s practice can now schedule two-hour new patient appointments within a week of a patient joining. And they are able to schedule one-hour return visits the same-day or next-day. This generous approach to time-per-patient wasn’t an option under his previous insurance-centric practice.

Small Patient Loads, Big Benefits

Dr. Jennifer Gaudiani, the founder of the Denver-based Gaudiani Clinic, also chose a simplified, membership-based billing model for her eating disorder clinic. “Where most traditional medical offices have thousands of patients, each of our physicians carries a patient load of only about 70 patients,” says Gaudiani. “This simplified billing model allows our physicians to have space. They now have the ability to better coordinate care with other professionals, such as therapists, dietitians, and other physicians.  And finally, they’re able communicate directly with their patients via email, phone, and appointments.”

Practice, Perfected

With their concierge-model practices, both Gaudiani and Lickerman say they have seen a substantial transformation in costs and overall practice overhead.

“We don’t have to hire staff to ensure that insurance companies are paying us for our services. This has enabled us to reduce our expenses by 30-40% below traditional fee-for-service practices,” says Lickerman. In addition to similar overhead reductions, Gaudiani’s clinic has been able to make significant staffing and environmental reinvestments with the resources saved by bypassing insurance billing. “We’re able to use funds to pay for expert physicians, nurses, and operational staff.  In the past we had to hire multiple individuals to handle insurance billing, collections, and more,” Gaudiani says. “We’ve utilized funds to ensure that our office space is warm and welcoming for anyone who comes through our door.  Whereas before we didn’t have the ability to be thoughtful about our surroundings.”

Tips for Making the Simplicity Shift

For other physicians curious about making the shift to simplified, no-insurance billing models, both Gaudiani and Lickerman have some advice. Lickerman emphasizes setting an appropriate membership fee from the get-go, and not selling your services short. Gaudiani recommends establishing a business plan, detailing the number of staff and patients needed to make the practice a success. Potential direct primary care/concierge practices may also want to explore automated billing software.  This software provides ways to reduce billing friction and increase overall patient satisfaction.

For both professionals, however, the patient is at the center of the membership model decision.  Simple billing, more focused care, and a smaller practice size allows each to deliver a personalized level of care for each patient at every visit, every time.


Everything You Always Wanted To Know About Payables Turnover Ratio But Were Afraid To Ask

Editor’s Note: This is one of an eight-part series about key financial terms all entrepreneurs should know.

If you’ve never taken an accounting course, “Payables Turnover Ratio” might sound like a complex, intimidating term. Thankfully, that’s not the case. By the end of this article, you’ll understand what it means, why it matters, and how it can impact your ability to raise capital. Who knows … you may even find yourself calculating your business’s most recent payables turnover ratio just for fun.

What is a payables turnover ratio?

In simple terms, payables turnover ratio means how quickly a business is able to pay back its suppliers. The ratio is calculated by dividing cost of sales and dividing it by the average accounts payable amount during the period you’re measuring. Businesses looking to raise capital should be prepared to show payables turnover ratio on an annual basis for the past three years (assuming the company is three years old), and on a quarterly basis for at least the previous eight quarters. Some potential investors may also request monthly reports. The payables amount can be found on a company’s balance sheet under “current liabilities.”

Why does a payables turnover ratio matter?

In general, healthy companies are able to pay back their debts quickly because they’re generating income and operating in the black. The payables turnover ratio gives potential investors a quick look at how frequently a company is paying down its debt obligations. If a turnover ratio is increasing over time, a company may be paying off its debts faster. A decreasing ratio may mean pay back is taking longer, which could be a sign that a company’s financial condition is declining.

A decreasing ratio isn’t always a bad thing. For instance, if your company has one major supplier who provides many of your raw materials and you negotiate longer payment terms (moving from Net 30 to Net 60, for instance), your payables turnover ratio will decrease. Be prepared to explain any such change to a would-be investor, along with its benefits or challenges.

How can payables turnover ratio impact your financing options?

Alissa Bryden, author of 100 Entrepreneurs and a CPA at Virtual Heights Accounting says liquidity ratio is important as entrepreneurs seek funding for their businesses. “The payable turnover ratio is used by creditors and lenders to consider a company’s ability to pay off its current debts (specifically its trade or accounts payables),” Bryden explains.

“If a company can easily pay off its current accounts payable and continues to do so, then it indicates that the company will not burn through additional capital catching up on old debts.” That’s important, she says, because it “offers an indication that the additional capital can be used for future growth,” which is the kind of investment firms look for.

How can I improve my payables turnover ratio before seeking funding?

“To increase this ratio, a start-up can ensure it is paying down its debts prior to month or period end,” Bryden says. “This is because the average payables are based on an opening and closing month end calculation. Funders want to see you are putting their funds to good use.”

What does it mean to put funds to good use? Although the exact interpretation will vary by industry and company, Bryden says an across-the-board measure is minimizing costs that are not related to growth. “Reducing administrative costs and streamlining processes can assist you in increasing this ratio without affecting your future growth — or the lender’s future return,” she says.

Does the payables turnover ratio go by any other name?

Yes! You’ll sometimes see payables turnover ratio referred to as “accounts payable turnover” or “the creditors’ turnover ratio.” Each term means the same thing and can be used interchangeably.

What’s next?

Just like it’s easier to travel in a foreign country when you know the language, it’s easier to raise capital (or secure any kind of funding for your business) when you’re familiar with key financial terms and their real-life applications. Don’t forget to check out our previous installments on turnover ratiodebt to income ratio and current ratio.


Introverted Entrepreneur? Learn These 5 Techniques Successful Networkers Use

Editor’s Note: This is one of an eight-part series about key financial terms all entrepreneurs should know.

If you’ve never taken an accounting course, “Payables Turnover Ratio” might sound like a complex, intimidating term. Thankfully, that’s not the case. By the end of this article, you’ll understand what it means, why it matters, and how it can impact your ability to raise capital. Who knows … you may even find yourself calculating your business’s most recent payables turnover ratio just for fun.

What is a payables turnover ratio?

In simple terms, payables turnover ratio means how quickly a business is able to pay back its suppliers. The ratio is calculated by dividing cost of sales and dividing it by the average accounts payable amount during the period you’re measuring. Businesses looking to raise capital should be prepared to show payables turnover ratio on an annual basis for the past three years (assuming the company is three years old), and on a quarterly basis for at least the previous eight quarters. Some potential investors may also request monthly reports. The payables amount can be found on a company’s balance sheet under “current liabilities.”

Why does a payables turnover ratio matter?

In general, healthy companies are able to pay back their debts quickly because they’re generating income and operating in the black. The payables turnover ratio gives potential investors a quick look at how frequently a company is paying down its debt obligations. If a turnover ratio is increasing over time, a company may be paying off its debts faster. A decreasing ratio may mean pay back is taking longer, which could be a sign that a company’s financial condition is declining.

A decreasing ratio isn’t always a bad thing. For instance, if your company has one major supplier who provides many of your raw materials and you negotiate longer payment terms (moving from Net 30 to Net 60, for instance), your payables turnover ratio will decrease. Be prepared to explain any such change to a would-be investor, along with its benefits or challenges.

How can payables turnover ratio impact your financing options?

Alissa Bryden, author of 100 Entrepreneurs and a CPA at Virtual Heights Accounting says liquidity ratio is important as entrepreneurs seek funding for their businesses. “The payable turnover ratio is used by creditors and lenders to consider a company’s ability to pay off its current debts (specifically its trade or accounts payables),” Bryden explains.

“If a company can easily pay off its current accounts payable and continues to do so, then it indicates that the company will not burn through additional capital catching up on old debts.” That’s important, she says, because it “offers an indication that the additional capital can be used for future growth,” which is the kind of investment firms look for.

How can I improve my payables turnover ratio before seeking funding?

“To increase this ratio, a start-up can ensure it is paying down its debts prior to month or period end,” Bryden says. “This is because the average payables are based on an opening and closing month end calculation. Funders want to see you are putting their funds to good use.”

What does it mean to put funds to good use? Although the exact interpretation will vary by industry and company, Bryden says an across-the-board measure is minimizing costs that are not related to growth. “Reducing administrative costs and streamlining processes can assist you in increasing this ratio without affecting your future growth — or the lender’s future return,” she says.

Does the payables turnover ratio go by any other name?

Yes! You’ll sometimes see payables turnover ratio referred to as “accounts payable turnover” or “the creditors’ turnover ratio.” Each term means the same thing and can be used interchangeably.

What’s next?

Just like it’s easier to travel in a foreign country when you know the language, it’s easier to raise capital (or secure any kind of funding for your business) when you’re familiar with key financial terms and their real-life applications. Don’t forget to check out our previous installments on turnover ratiodebt to income ratio and current ratio.


Why you should consider going hyperlocal

Small businesses can often be better positioned than larger firms, thanks to their ability to pivot, anticipate trends and respond to their customer needs faster than larger competitors. That’s why many businesses are focusing on becoming hyperlocal.

A hyperlocal focus means a business targets a narrow geographic area, typically online and driven by search. Google near-me searches are no longer about just where to go, but about finding a specific thing, in a specific area, and in a specific period of time says Lisa Gevelber, Google’s VP of Marketing for the Americas in a piece for Think with Google.

Gevelber points out that online searches have changed; “near-me” mobile searches that contain a variant of, “can I buy,” or, “to buy” have grown more than 500 percent between 2015 and 2018. Many of the users were including location qualifiers like ZIP codes and neighborhood names in local searches because users assume, she says, the results will be automatically relevant to their location thanks to their devices.

These local search trends are important because learning how to be discovered at the hyperlocal level can help businesses grow a loyal, consistent customer base.

Here’s what small businesses can do to improve their hyperlocal traffic.

Grow Loyalty in Small Batches

Focusing on your city and region, as well as things of interest to your target audience can have a big payoff. Some large businesses create hypertargeted connections to create a virtual bridge to feel more local, even if they aren’t. The rationale is simple: dedicated customers who are embracing your product or service can help to grow your business on a hyperlocal level by creating a personal connection among their concentrated local sphere of influence.

Instead of going after mega-influencers who have thousands of followers on social media, many companies are looking for the “non-influencer” who has a lot of pull within a smaller, more intimate circle.

For example, Pedialyte, the toddler flu remedy, has widened its market with hyperlocal marketing as a hangover remedy.

According to Vox, “Pedialyte’s social media team started commenting on every single post that mentioned the brand, most commonly with, “You made our day!” and, “Stay hydrated,” paired with a sunglasses emoji. Then they started hopping into DMs, writing, “You’re a big fan of ours, it’s no secret. Well, we noticed and were wondering if you’d consider joining #TeamPedialyte? And we aren’t just asking anybody. … Only real-deals like yourself.”

Then Pedialyte sent out care packages and summer survival kits, recommended hashtags such as #TeamPedialyte and sharing an Amazon discount code.

What was surprising: “Almost none of these fans have more than 800 followers, and most have between 200 and 300. They’re not influencers, except in their very immediate social circles.”

A small business, such as a local coffee shop, can do this on a more intimate scale by reaching out to it’s social media followers and invite them to come in for a free cup of java or to try a new menu item as a public thank you for their loyalty coupled with a creative hashtag that can easily be tracked and followed.

Maintain Mobile Compatibility and Location Information

To connect on a hyperlocal level, it’s important to be easy to find.

Make sure your business is listed and verified on Google maps as well as BingYelpYahoo! Small Business’ LocalworksDexKnowsYellow Pages, and TripAdvisor, for travelers who are looking for a more local experience.

Double check to ensure your website is mobile optimized to make your business easily accessible, and ask for online referrals to help build traffic.

Be present on social channels like Instagram, Facebook, Twitter, and LinkedIn and make sure to add location tags into social media posts.

To help your ranking, make sure your basic information, sometimes also referred to as NAP— name, address, phone number— is listed, verified, and matches across as many services as possible to help with search rankings. For other search tips, review this post on Convince & Convert with Jay Baer.

Geotarget Potential Customers

Being in the right place at the right time can make a big difference. Offering a promotion to the correct audience can be even more important.

Small businesses can actively reach out on a hyperlocal level by geotargeting a specific group of influencers or potential customers based on a state, region or city, typically by using IP addresses.

Geotargeting can be done on a state, city or zip code level with IP addresses, through GPS signals or by geofencing, setting up a virtual perimeter where a promotion is valid. Although it’s not 100 percent accurate, the first three digits of a person’s IP address typically corresponds to the country code, while the remaining digits usually refer to specific areas.

Your company’s location will help determine how big or small of a geographic region you should create. Small businesses in more rural areas may want to set a larger target radius of 20 or 30 miles in diameter. For large urban areas, many businesses only target a one-mile radius, according to Adweek.

Create a Hashtag

Want things to trend locally or spread virally? The #MeToo movement has proven that a worthy hashtag and topic will go viral in a very short amount of time. That methodology can also help small businesses who might want to promote a trend, theme or sale on a hyperlocal level.

Not sure what hashtag to use? CreativeandCoffee blog offers a comprehensive list of hashtags for small businesses. Consider using local hashtags along with more general hashtags like #ShopLocal, #SmallBusiness, #Entrepreneur and #MakeItHappen to help align your business with others.


Introverted Entrepreneur? Learn These 5 Techniques Successful Networkers Use

Are you an introverted business owner who doesn’t know where to begin when it comes to networking? If so, you need a plan. Start by focusing on these five techniques commonly used by top networkers.

1. Be Community-Minded

It’s easier to network or get to know new people when you’re united for a common purpose or cause. Top networkers follow their personal interests to find volunteer opportunities, sports, and service organizations to join, expanding their circle of acquaintances.

Look for opportunities to give back to your community in a group setting. Volunteer as a board or committee member, or at your child’s favorite activity or school event. Focusing on completing a task or fulfilling a mission can help you ease into conversations when small-talk isn’t your strong suit.

2. Be a Listener

Don’t like to talk a lot? Don’t worry. The best networkers aren’t always gregarious, outgoing people. Instead, they ask questions, and then simply listen.

People love to talk about themselves, and this is how you’ll learn about an individual’s passions, skills, and other contacts. And pay attention – you never know who can help you down the road.

Start by approaching an individual who appears to be on their own. Encourage others to talk by asking open ended questions such as, “So why were you interested in coming to this event/meeting?” Or, “How did you get involved in this cause/organization?”

3. Keep Track of Who’s Who

Cultivating a network as a useful business resource requires keeping track of who’s who, as well as how to contact them.

Whether you track your contact list on your iPhone, your LinkedIn account, or a favorite app, the best networkers follow a systematic approach to organizing contact lists so individual information is easy to find when needed. Make a note of where/when you met, any pertinent details of conversations, and other acquaintances you may have in common. This can make it easier to find the individual in your list when you’re ready to connect again in the future.

4. Connect Others

Connecting with others isn’t always about who can do something for you right now. The most successful networkers look for opportunities to connect others to their mutual benefit. And then those individuals are more likely to help you when you’re looking for a favor down the road.

5. Network with a Purpose

When you’re an introverted business owner or entrepreneur, it may help to remind yourself of why you’re reaching out to people at an event or meeting. Maybe you want to get local exposure for your business, or get recommendations for professional services such as a new attorney or accountant.

Whether you’re attending a community event, or checking out a local business meetup, focus on getting to know just one personal at a time. Even if you make just three meaningful connections at each meeting, you’re expanding your network steadily and purposefully.


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