Everything You Always Wanted To Know About Income Statements But Were Afraid To Ask

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

Chances are you’ve heard the word “Income Statement” at some point during your entrepreneurial journey. Maybe you’ve even reviewed one from your CPA or CFO (If so, bonus points!). But, if your eyes glaze over a bit when you hear the term.  Or, if you’re not entirely sure how an income statement is different than a balance sheet.  You’re in the right place.

What is an income statement?

It’s a financial report that shows a company’s financial performance over a specified period of time.  Typically income statements are reported on a monthly, quarterly, or annual bases. However, a report can address any time period. An income statement shows revenues and expenses from operating and non-operating activities, along with net profit or loss. Income statements are sometimes referred to as “profit and loss statements.”

Why are Income Statements Important?

Income statements provide an easy-to-review report of your company’s performance over a period of time. Comparing multiple income statements for multiple periods of time can give you insight into how your business is doing overall. For example, if sales are up but expenses are up even more, your net profit may be down.

How can Income Statements Impact Financing Options?

Because they show performance over a period of time, many lenders use income statements to assess how a business’ sales and net income are changing over time. For this reason, many potential lenders require multiple income statements to review.  They could potentially request three or more years’ worth, depending on the sum you’re financing or raising.

If you’re an entrepreneur exploring financing options, start reviewing your income statements. It’s best to review with your CPA or CFO, but if you don’t have one, use your accounting software to generate the monthly, quarterly, and annual reports now so you’re well-versed on your company’s financial health before you begin conversations with outside parties.

Ask An Expert

Bradley Klingsporn is a practicing CPA and Co-Founder/Co-Owner of Aardvark Wine Lounge in Green Bay, Wisconsin, so he knows a thing or two about why income statements are important to entrepreneurs.

Why is it important to have a handle on your income statement if you’re looking to raise capital?

Klingsporn: Not every company is a tech startup that can operate in the red for years and keep raising capital. Most businesses need to show profits or at least growth to convince investors to give you their money. Keeping close tabs on your income statement can help you know when it is a good time to raise capital and when it might be best to wait a few weeks if you expect some significant improvements.

What’s the biggest misunderstanding about income statements that you see from other entrepreneurs?

Klingsporn: Many small business owners have a difficult time differentiating regular ebbs and flows from trends. There is no hard and fast rule to determine whether a bad month is just a bad month or if it’s the start of a trend (the same can be true of good months). The income statement is a starting point that is used to begin understanding where the business is, but requires additional information to determine what that means for the future. For example, restaurants and bars will often see increased sales in months that have five weekends – to interpret these increases as growth could lead an owner to make capital improvements or hire additional staff that they may not be able to afford when the following month sees a decrease with only four weekends.

Give Me More

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. Want to get up to speed on your finances? Check out the other articles in this series which cover: turnover ratiodebt to income ratiopayables turnover ratiodebt service coverage ratiocurrent ratiocash flow statements, and inventory turnover ratio.


3 Issues Women-Owned Businesses Should Be Watching Closely

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

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.


7 Reasons Asset Based Financing Might Make Sense for Your Fast-growing Company

Fast-growing businesses may face a problem financing an expansion. But asset based financing may offer advantages over more traditional methods of borrowing money. Here’s what you need to know.

How asset based financing works.

Imagine that you are running a retail apparel company and need cash to grow your business. Instead of applying for a loan based on the company’s credit history, you might instead ask for financing secured by the inventory you hold. Clothing retailers usually hold significant levels of inventory (dresses, jeans, etc.) which may be used as loan collateral.

Many retailers also operate as wholesalers to smaller firms and so usually have unpaid invoices outstanding. Companies may also be able to use those invoices to help finance their own operations by contracting with an intermediary known as a factor. The factor buys the invoices at a discount in exchange for providing immediate cash.

Here are seven reasons consider asset-based financing.

What are the benefits of asset based financing?

When compared to traditional forms of lending, asset based financing can can offer a wide array of benefits – from fewer restriction, to cost savings, to less paper work. While it is not the best fit for every business, it does make sense to include it as part of your due diligence when selecting the best financing product for your business.

Here are seven reasons to consider asset-based financing.

1. Potentially lower costs

Asset based loans are secured loans. And, therefore, may be far cheaper than traditional loans which are usually based on the company’s financial history. If a loan is based solely on the credit history of a firm, it is considered an unsecured loan. As such, the borrower will get charged a higher interest rate. That’s because the bank may be assuming more risk when they make an unsecured loan.

The secured versus unsecured loan structures are similar to consumer loans, in that home loans may be cheaper than credit card debts. With a home loan, if you don’t pay your mortgage the bank may repossess your home; however, with credit card debt there’s typically no security deposit backing up the loan.

2. Less paperwork

While obtaining a traditional business loan might require you to document the financial history of your company’s operations, an asset-based loan likely would not. In other words, borrowing against the value of your inventory might be an easier way for a newer company to get financing than trying to get a traditional loan.

3. Fewer restrictions than traditional loans

Many loans have restrictions on how the money from the loan gets used. For instance, a bank may ask why you need a conventional loan (also known as a term-loan because it is given for a specified period) and how you intend to repay it. If you take out a term-loan and tell the bank you want to use it to remodel your retail stores, then that is how the bank expects you to use the proceeds. The good news is that asset based loans typically may have fewer use restrictions.

4. More flexible repayment terms

You must eventually pay back any loan to the lender. However, not all loans are created equally. Asset based loans often don’t require the entire loan amount to be paid off according to a fixed timetable, often known as an amortization schedule. Term loan payments (including a pay-down of the principal balance) must be paid each month. Asset-based loans often have more flexible payment terms, allowing businesses to pay off the debt at a time that is most suitable given their cash flow. The result is potentially more flexibility for companies using asset based financing.

5. Streamlined balance sheets

If you take out a traditional loan, then the balance due appears on your balance sheet. Some asset based financing does not get recorded that way. For instance, if you sold your outstanding invoices to a factor in exchange for immediate cash, there would be no balance to show on your firm’s balance sheet. All you’d need to do is to note how you managed this financial transaction in a footnote on the financial statements. This is known as off-balance sheet financing.

6. A good way to finance working capital.

Companies experiencing fast growth may find it hard to get additional working capital via revolving lines of credit. On the same end, as the need for working capital increases your firm may have higher levels of inventory and larger invoices due from customers. You may use inventory and larger invoices as collateral to finance increased working capital needs.

Feeling more confident about your business to go shopping for a loan? Before you start looking you should understand what factors impact terms of your loans.


Everything You Always Wanted To Know About Cash Flow Statements But Were Afraid To Ask

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

Never heard the term “Cash Flow Statement”? The good news is that it’s almost exactly what it sounds like! And, by the end of this article, even a financial-terms-novice can feel comfortable reviewing and discussing a cash flow statement with his or her CPA or CFO.

Feeling comfortable with a cash flow statement is imperative, because these reports are critically important to your business. In fact, CPA and entrepreneur, Bradley Klingsporn, founder of Green Bay’s Aardvark Wine Lounge, says “Many small business owners and small business accountants believe that the cash flow statement is more important than an income statement.” That’s because, “[if] the business is making huge profits, but doesn’t have anything in the bank, it won’t be able to pay its bills and it could still go under. Keeping a close eye on the cash balance is as, if not more, important than keeping an eye on the bottom line.”

What exactly is a cash flow statement?

A cash flow statement is a financial report that shows the amount of cash and cash equivalents used by a company in a given period. Cash flow statements contain three main categories. The three categories are cash flow from:

  1. operating activities
  2. investing activities
  3. financing activities.

Taken together, these three groups account for all cash coming into and going out of a business.

Why are cash flow statements important?

Staying on top of cash balance is critical to the health of a business.  This is of particular importance if you’re a business who is likely to raise money at some point. And knowing your “runway” — or how long you’re able to operate with the cash you have on-hand at the moment — is key.

When reviewing cash flow statements, entrepreneurs should be asking if the cash flows are sustainable. “If cash decreased in the period, was this because of a change that period? For example a capital purchase or large debt payment.  Or is this going to persist? For example, regular loan payments)?” Klingsporn asks. “If cash decreases are expected, is there a need for additional cash inflows? If so, how will the business get the additional cash?”

How can cash flow statements impact your financing options?

Cash flow statements allow potential financing partners to assess a company’s general health, including how quickly your company will be able to pay off outstanding debts. Although it’s not imperative to have a high cash flow to borrow money, lenders may favor companies that do. The more positive a cash flow statement looks, the easier time you likely to have securing favorable financing options.

Can I create my cash flow statement?

If you’re in the early stages of looking to raise capital and have never put together or reviewed a cash flow statement, Klingsporn’s advice is to bring in an expert. “Hire an accountant,” he says. “If you don’t want to do that, the basic process is to identify cash inflows and outflows that don’t affect net income and expenses and income that doesn’t affect cash. The former would include principal loan payments, cash from new debt, and purchases or sales of capital equipment. The latter would include depreciation and changes in receivables or payables. If that sounds confusing, see the first sentence.”

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.  Check out the other installments in this series covering The next installment of this series, where you will learn everything you wanted to know about turnover ratiodebt to income ratiopayables turnover ratiodebt service coverage ratio and current ratio


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

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.


Everything You Always Wanted To Know About Debt-Service-Coverage Ratio But Were Afraid To Ask

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

Financial literacy is important for all business owners, but it’s absolutely critical for those who are considering raising money in the near future. Here’s everything you need to know about debt-service coverage ratio (DSCR), with an expert weighing in on why it matters.

What is debt-service coverage ratio?

Debt-service coverage ratio is a measure of a company’s ability to pay its debt based on available cash flow. It is calculated by dividing net operating income (noi) by total debt service.”Debt service” is a term that refers to all obligations due within one year. This includes short-term debt and the current portion of long-term debt on the company’s balance sheet.

Why is debt-service coverage ratio important?

Debt-service coverage ratio is important because it shows investors and lenders that you have positive cash flow. Having positive cash flow shows that you have made smart managing decisions in balancing your debt obligations and operating expenses. If you DSCR calulations show that you have a DSCR of less than one (1), that means your business has negative cash flow.  A negative cash flow indicates, essentially, that you will need to borrow money to pay off existing debts.

How can debt service coverage ratio impact your ability to raise capital?

Though varying economic conditions and differences from industry to industry impact the minimum DSCR an investor or lender will look for, generally speaking, the higher your DSCR, the easier it will be to raise capital. If your DSCR is below one (1), raising or borrowing might prove incredibly difficult — or, at least, prohibitively expensive. Conversely, if you have a high DSCR — say, above 1.5 — you can use it as a bargaining chip. Knowing that your company may be considered an attractive investment gives you the power to seek out favorable terms from potential investors and lenders.

How can you improve your debt service coverage ratio?

To better your chances of getting a loan or other infusion of capital, you will need to increase your DSCR.  Doing this may not be as difficult as you may think. One thing you can consider is looking into increasing your net operating income to cover expense.  Another is decreasing your operating expenses. With both of these, you can use the additional cashflow to pay off existing debt. All three of these – increasing your net operating income, decreasing your operating expenses, and paying off some debt – help to improve youre DSCR.

When looking to increase your net operating income, think of some ways you can quickly and easily increase your revenue such as turning excess inventory into extra revenue, leveraging tactics your customers already trust to increase your sales, and making sure you are taking advantage of every lead or potential customer that comes your way.

Giving a boost to your revenue is only one way to increase your net operating incoming.  Another quick and easy way to accomplish this is by decreasing your operating expenses. Believe it or not, there are a number of ways you can decrease operating expenses and free up some of your capital – from revisiting vendor relations and strategies, to splitting core and convenience ordering to improving your negotiation skills, you’re sure to find an area to cut expenses.   You can also find ways to increase employee productivity, and improve processes.

Ask an expert about debt-service coverage ratios:

Vincenzo Villamena, managing partner of entrepreneur-focused CPA firm Global Expat Advisors, breaks down why debt-service coverage ratio is so important for entrepreneurs to track.

Why is debt-service-coverage ratio an important metric investors and lenders consider before funding a business?

Investors and lenders use the DSCR to see if you can make your monthly loan payments.  It is also used to determine how much they can lend you safely on any economic condition. The DSCR makes you more likely to qualify for a loan and receive better terms for the loan, such as lower interest payments and higher borrowing amount.

What’s a solid DSCR business owners should strive to maintain while growing a business?

Generally speaking, a DSCR of 1.2 or better is considered good.  Although, I have seen loans given to companies with 1.1 ratio. I’ve also seen when the economy or an industry is down, the banks requiring a ratio of 1.5 or better.  So there is always a variance.

If an entrepreneur has a DSCR below 1, what explanation might he/she be able to offer to would-be investors and lenders to ease their concerns?

If the DSCR is below 1, there needs to be a good explanation to give to investors and lenders, such as a lot of R&D costs, hirings or a recent product launch in which the true revenues of the company do not reflect the YTD or LTM financials.

What’s next?

A key to success as a business owner is never being afraid to admit what you don’t know. Don’t know as many financial terms as you’d like to? No problem! Check out the other installments in this series covering The next installment of this series, where you will learn everything you wanted to know about turnover ratiodebt to income ratiopayables turnover ratio and current ratio


How to Find Grants to Grow Your Business

So, you’ve got a great business idea, and now you’ve got to fund it. Or maybe you need an infusion of cash to help it grow. Regardless of your situation, navigating how to find additional funding can be difficult.

There are grants and similar funding sources to help you launch, grow or expand your small business, but before you apply, make sure you thoroughly review the eligibility requirements and deadlines, as well as the applications of previous winners.

Many small businesses initially start by looking at Grants.gov. You can also go to GrantsWatch.com, an aggregator website that allows visitors to search by geographic region or sector.

Here are a some other places to help your funding search.

Grants for the self-employed or just getting started

If you work for yourself and become a member of the National Association for Self-Employed, you can apply for a grant worth up to $4,000 to help grow your business. Since 2006, the grant has awarded $650,000 to small businesses to help them purchase computers, farm equipment, hire part-time help, pay for marketing materials, creating a website and more.

Also take a look at the Idea Cafe. Although many of the award recipients are women, this website has a small business grant center open to everyone, including $1,000 small business grants for anyone who currently owns a business or is planning to start one.

Grants from corporations

Many corporations offer small business grants, though they tend to be focused on a theme or issue, and often are structured as competitions. Finding a corporate grant program that fits your idea or small business may take some additional searching.

Launched in 2015, the Visa Everywhere Initiative funds businesses that help solve payments and commerce challenges. In 2018, four finalists — three challenge winners and one audience choice winner — competed for the grand prize of $50,000 and a potential partnership with Visa.

Another option is the FedEx Small Business Grant. From reinventing the wheel for a wheelchair to helping girls access science, annual grants help entrepreneurs launch their ideas and businesses.

Grants for nonprofit organizations

If your new business is a nonprofit, you might consider applying for a grant from Walmart. The large corporation gave over a billion in cash and in-kind contributions during its latest fiscal year. Its grants are typically given to nonprofit organizations that usually focus on sustainability and/or community-centered groups and ideas.

Their Spark Communities Program, formerly known as the State Giving Program, awards multi-year grants starting at $500,000 to 501(c)(3) organizations.

Grants for businesses in rural areas

The USDA offers Rural Business Development Grants for companies of less than 50 people and with less than $1 million in gross revenue. If you’re a farmer in Texas who has a business idea the Texas Department of Agriculture funds grants twice a year (spring and fall) for farmers ages 18-46.

Regional grants

Many regions have geographic-specific grants. For example, the city of Chicago has a Small Business Improvement Fund that uses Tax Increment Financing — better known as TIFs— to help companies that repair or remodel their facilities for their own business or on behalf of tenants up to $150,000.

You can also review local options by going to state agency websites. For example, if you live in Iowa, there’s a whole list of grants on IowaGrants.gov. In Washington, D.C., the Department of Small and Local Business Development has its DC Main Street grants to help improve business districts with more retail stores. To look state-by-state options, try USA.gov.

Grants from the federal government

On a national level, if you’re looking to partner with a federal agency on research and development, consider the Small Business Technology Transfer Program (SBTT), which has small business collaborate with the research and development department of a federal agency such as the Department of Energy, National Science Foundation and Department of Defense.

Another option is the Small Business Innovation Research Program (SBIR), where small businesses work with federal research and development departments in order commercialize research.


5 Steps to Take Today to Increase Your Credit Score

Your credit score — the number between 300 and 850 that represents your personal creditworthiness — has a larger impact on your business and your life than you might imagine. The higher your score, the better your odds may be of leasing a car, equipment, or space to house your company. A better score may also reduce your expenses, by helping you qualify for lower interest rates on purchases, too.

Taking steps to increase your credit score may also have a direct impact on your monthly budget and your ability to achieve larger goals like buying a building or expanding overseas.

So what can you do to improve your score quickly? Beverly Blair Harzog, credit card expert for US News & World Report and author of The Debt Escape Plan, has some advice.

First, she says, start by finding out what your current score is. You can get a free credit report and score once a year from each of the three credit reporting agencies – EquifaxExperian, and TransUnion. Review the report to find any information that is incorrect and dispute it. Having negative items removed may increase your score right away.

Take these five steps to help boost your credit score:

1. Get your credit card debt to below 30% utilization.

Thirty percent of your FICO score (short for Fair Isaac Corporation), says Harzog, is based on how much of your available credit you’re currently tapping into.

To calculate your utilization, add up all of your credit card debt and divide it by the total amount of credit you were originally granted. You want that total number — across all your cards — to be under 30%. (But 10% is even better, she says.)

Meaning, if you have three credit cards with a $1,000 credit limit on each, your total available credit is $3,000. And if you’ve charged a total of $500 on each card, or $1,500, you’re at a 50% utilization rate. That’s too high.

One solution is to pay down the debt. The other is to increase your credit availability.

2. Ask for a credit limit increase.

Harzog recommends calling your credit card issuers and asking for a credit limit increase.  But you should do this only if you have a track record of paying your bills on time.

Do not make this call if you frequently pay late. If you’re a late payer and you ask for an increase, the credit department may look at your account and decide to reduce your credit limit, which would in turn lower your score.

3. Keep your credit cards active by charging a small amount each month on them. 

Cards that have no activity are at risk of being closed.  A closed card would reduce your available credit and negatively impact your score. So consider buying something small on it to keep it open.

Then try to pay off the card each month, to keep your utilization low.

4. Get into the habit of paying all your bills on time.

Since 35% of your FICO score is based on payment history, even one late payment can cause a score drop. This includes your credit cards, mortgage, car payment, as well as your utilities and phone bill, says Harzog.

If you have difficulty staying on top of your bills, create a budget and at least make the minimum payment each month, so that your creditors can report you paid on time.

5. Consider a credit builder loan.

Credit unions and community banks frequently offer these tools, which allow you to demonstrate a track record of timely repayment. These types of loans “Won’t give your score as big a boost” as the other steps, but they will have an impact, says Harzog.

While working on your score, do not close any credit accounts, she recommends. Every account closed reduces your available credit, which then increases your utilization, which you don’t want. So unless the annual fee is huge, leave it open.

The truth is, you don’t have to have high income to earn an excellent credit score to benefit your business, says Harzog, “You just have to pay on time.”


Cash Crunch? 5 Ways to Handle Accounts Payable Woes

Business owners the world over know that a smooth cash flow can be critical to a business’s success. But, achieving the optimal flow of money coming in and going out isn’t simple. Cash flow can be difficult to manage since you often don’t have control over the money flowing in. However, the way you handle accounts payable can help smooth out your cash flow.

Here are five ways to help you meet your accounts payable responsibilities with an eye to smoother cash flow.

Renegotiate Your Accounts Payable Terms

Has your business established itself as a good customer – paying suppliers in full and on time? If so, consider requesting more flexible payment terms when contract renewal time rolls around.

Maybe you could arrange extended payment terms during the slow season to accommodate sluggish accounts receivables. Or reduce the cash leaving your business by requesting discounts for early payments or bulk purchases during traditional busy seasons.

Remember to watch out for special offers from your suppliers’ competitors. Use these offers as opportunities to ask for a price match.

Apply for a Credit/Operating Line Before You Need It

If your business doesn’t have a credit line/operating line, apply for one now, even if you don’t currently expect to use it. Don’t wait until it’s a struggle to pay your business bills. If you wait, your business credit may have suffered due to late or partial payments to suppliers or other creditors. Not to mention the added stress of hoping for a credit line approval in addition to worrying about paying the bills! Instead, applying for a business credit line while your records show good cash flow could strengthen your credit application.

A credit line helps smooth out cash flow by giving businesses a financial source that they can tap to meet immediate accounts payable obligations. You’ll only pay interest on the money borrowed against the credit line. Depending on the terms of the credit line, your monthly payments could be interest only, or a set percentage of the total amount borrowed. You can pay the balance off at any time, such as when your accounts receivables are flowing in well. Like a credit card, a credit line is a form of “revolving credit,” so when you pay your balance off (or down), you can then borrow again up to your credit line limit as needed.

Delay Payments Due Until Last Possible Date

Although you may get anxious about making payments early, when you’re trying to deal with a cash crunch consider holding off making payments until the due date. Doing so gives your business more time to collect on outstanding accounts receivable – providing the cash to make your payments. And if you’re making payments from your credit line, which charges interest from the day you withdraw the funds, you’ll pay less in interest with a delayed payment.

Pay Suppliers with Credit Cards

It seems simple, yet paying suppliers by credit card is one of the best ways to smooth cash flow and deal with accounts payable woes. That’s because unlike credit lines or operating lines – which charge interest from day the money is borrowed – credit cards have what is known as a grace period for credit card purchases.

A grace period refers to a time frame during which interest accumulates but isn’t charged as long as the outstanding credit card balance is paid in full by the due date. So you’re essentially borrowing money interest-free during the grace period. If you use this strategy, pay close attention to both the credit card grace period as well as your supplier due date to make sure you won’t get charged additional interest for late payments to either.

For example, say you owe your supplier $1500 on the 15th of the month. They process your credit card payment for the 15th, which falls at the beginning of your credit card grace period. Depending on the credit card issuer, you may have a grace period of anywhere from 21 to 25 days. And take note – grace periods may not apply to credit card cash advances and balance transfers.

Liquidate Assets You Don’t Use/Need

If you need a fast solution to paying your business bills, consider liquidating assets for cash. Does your business own equipment, supplies, machinery, real estate, vehicles or other assets that you could sell? Although it may seem drastic, selling assets may prove a quick method of gaining cash to cover upcoming accounts payables while you work on a longer-term accounts payable strategy.

Keeping on top of your accounts payables can help improve your business’ financial health. It could have a positive impact on your business credit, and establish or improve the relationship with your suppliers.


4 Smart Tech Solutions for Cash Flow Management

Small businesses are increasingly using technology across disciplines to grow, attract top talent, and sell products and services. So, applying a digital approach to cash flow management is a natural next step. Four types of tech, in particular, may prove invaluable for improving your business’s cash flow efficiency.

1. CRM Software

Customer relationship management (CRM) software is useful for maintaining customer records, but there are more applications to CRM for small businesses. CRM software can improve cash flow by improving your sales records, and by ensuring that your business focuses its energies on the most profitable activities consistently. For example, that may be attracting and converting a new customer base or taking proactive steps to retain existing customers.

2. Automation

Automating cash flow systems may yield multiple benefits. First and foremost, it’s a time-saver. Rectifying accounts becomes streamlined when your accounts payable and accounts receivable systems are automated.

Automation can also make it easier to monitor cash flow within your business accounts. If your cash flow system is centralized, you can easily see – at a glance – how much cash you have on hand and what payables or receivables are still outstanding.

Additionally, automating can make settling accounts easier for your customers and vendors. When payments to vendors are automated and customers are able to receive and pay invoices via auto payments, it’s possible to smooth out cash flow bumps and know when money is coming in or going out.

3. Virtual Accounts and Digital Payments

Virtual account management is a way to manage multiple business financial accounts under a single umbrella. Your virtual account can be tied to various physical bank accounts in order to act as a gatekeeper. Payments to vendors and payments received from customers move through the virtual account, making reconciliation less of a hassle and resulting in fewer banking fees.

Accepting digital payments through virtual accounts provides another tech-driven cash flow enhancement. Allowing customers to pay using PayPal, Apple Pay, Google Pay and similar payment apps can make settling invoices more convenient and it may offer the added bonus of allowing you to avoid expensive credit card processing fees.

4. Data Analytics

Big data analysis isn’t just for large corporations; small and medium-sized enterprises can also leverage data analytics for improving cash flow.

By analyzing trends in your payables and receivables data, you can generate more accurate cash flow forecasts. Specifically, you can drill down and see how something such as developing a new product or implementing a price change might affect your cash flow. Data analysis can also help you identify and plan for seasonal dips in cash flow, or find out-of-the-ordinary activity that could impact cash flow negatively. Bottom line, data analytics can help you be more insightful when it comes to cash flow management.


5 Essential Financial Documents You Need to Apply for a Business Loan

Planning to apply for a business loan? Having specific financial documents ready for your banker or a lender when you submit your loan application can make the loan process smoother and potentially increase your chances of securing financing.

1. A/R Aging Statement

An accounts receivable aging report — also known as an accounts receivable reconciliation — summarizes your outstanding receivables, based on the length of time they’ve gone unpaid. For example, your report might break out the timing of your unpaid invoices like this:

  • Less than 30 days old
  • 31- to 60-days old
  • 61- to 90-days old
  • 91+ days old

An A/R aging report gives lenders one insight into your cash flow and ability to repay a loan. The faster your receivables are paid, the better your cash flow may be.

2. Cash flow statement

Speaking of cash flow, you’ll need to draft a cash flow statement before applying for a loan. This document is a comparison of the cash you have coming in to the business from your receivables, and your payables (meaning what you have going out for expenses), including interest paid on business loans, and business investments.

So why does a lender need a cash flow statement? Similar to the A/R aging report, it’s a way to measure your business’s ability to repay a loan. A healthy cash flow may put your business at lower risk of default.

3. Profit and loss statement

The primary purpose of a profit and loss statement (P&L) is to examine your business’s net income or earnings. Your profit is the amount left over from your total revenue after operating expenses, taxes, interest paid on business debt and depreciation, and amortization of business assets is deducted.

A P&L statement can show you and your lender how your profits have trended over time. A business that’s consistently profitable, for example, may be more likely to be considered financially sound and equipped to repay a loan.

4. Balance sheet

Profit and loss statements and balance sheets sometimes overlap, but they serve different purposes. A P&L statement tracks your financial performance over a set time frame; your balance sheet offers a snapshot of your business’s financial standing at one specific point in time.

A balance sheet measures three things:

  1. Your business assets
  2. Your business liabilities
  3. Your ownership equity

When applying for a loan, lenders may review your balance sheet to gauge how easily you can meet your financial obligations in the short-term.

5. Tax returns

Last but not least, lenders will ask to see your business tax returns from the previous year. In some cases, they may ask for several years’ worth of returns.

Lenders use your tax returns to back up the information you’ve supplied through your other financial documents. They can see – at a glance – your business income and deductible expenses, then compare that to the numbers on your cash flow statement, balance sheet and profit and loss statement.

Together, these five documents give lenders a holistic picture of your business’s financial health, and being diligent about preparing them can pay off once you’re ready to apply for a loan.


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