Wednesday, February 24, 2016

What do small business owners struggle with : How to deal with cash flow Part 2

We are working our way through a list of things small business owners struggle with the most.  Last week we talked about how cash flow can be a struggle and this week we are going to talk about specific things you can do to improve the cash flow for your business.

The key elements to cash flow are inflows and outflows: Inflows can occur as follows: sales=cash or sales=accounts receivable, collecting accounts receivable=cash.  Borrowing money from the bank either in a loan or a draw on a line of credit=cash. Putting your own money into the business, either as a loan or as equity=cash. Selling assets you don't need (equipment)=cash. 

Outflows occur when you are spending money: make a loan payment or pay down your line of credit=money out the door. Buying inventory=money out the door.  Buying equipment=money out the door.  Paying employees and other bills=money out the door.  Taking a draw for yourself=money out the door.

How can you impact your cash flow?  Increasing sales will bring more money in the door.  Collecting your accounts receivable faster will bring money in the door faster.  Having a line of credit to pay for inventory will slow the pace of money going out the door.  Getting terms from your suppliers or the equipment vendor will also slow the pace of money going out the door.  

A great way to control cash flow is to try and match the terms you get from your suppliers with the terms you offer your customers.  If your suppliers give you 30 days to pay for your inventory, then you can offer 30 days to your customers.  If your suppliers give you 15 days, you don't want to give your customers 30 days unless you have a line of credit to cover the gap.When you are considering buying new equipment, think about the impact on your cash flow.  Even if you get a loan to pay for it or the vendor gives you terms, you will still have money going out the door at some point so you want to make sure the new equipment will somehow generate some money coming in the door: will you make more sales because of the purchase?  Will your costs (labor?) go down because of the purchase? Will the quality of your product improve so you can raise prices which will bring more money in the door?

Many entrepreneurs focus simply on profits and that can be a real issue if the business has inventory or accounts receivable or a long manufacturing process.  Mapping out the pace with which money comes in and money goes out is the secret to success for a small business. 

Thursday, February 18, 2016

What do small business owners struggle with : How to deal with cash flow

We are talking about the top things small business owners struggle with and this week the subject is cash flow.  We will start by talking about what cash flow is and then next week we will talk about how to manage cash flow.

Small business start ups are often not expected to be profitable in the first year of operations, however having adequate cash flow is of paramount importance. A well written business plan is the first key to insuring adequate cash flow for a start up.  After the start up phase has passed, the small business owner still needs to keep a close eye on cash flow.

What is cash flow?  Cash flow is the difference between the pace with which money comes into the business and the speed with which it leaves.  This differs from profitability due to several factors.  A business can be operating at a loss but still have enough cash coming in to survive due to proper financing.  This is true during the start up phase but can also be true during times of expansion or economic hardship or seasonal issues. Many retailers operate at a loss or at break even until the holiday season. They need to purchase inventory before the holiday season, but they won't see the money from the sale of that inventory until later.  Obtaining extended terms from a supplier or using a line of credit from a bank is an example of managing cash flow. Conversely, a business can be profitable and still run into cash flow issues. A business going through a period of rapid expansion may see this occur.  They are purchasing inventory or new equipment or added staff to handle the sales growth but the cash flowing out for the purchases may outpace the increase in revenue.

There is a popular saying in the business world "cash is king" and cash flow is a prime example.  Next week we will dive into ways to manage cash flow.

Tuesday, February 9, 2016

What do small business owners struggle with most?

Being a small business owner is a difficult endeavor and the issues vary from business to business.  Here are a few common issues which we will address over the next few weeks:


  1. Understanding, managing and improving cash flow
  2. Finding good outsourced service providers such as accountants and attorneys
  3. Keeping up with laws and compliance issues
  4. Dealing with employees if you don't have human resources person
  5. Developing and maintaining an ongoing marketing strategy
  6. Prioritizing tasks and delegating
Are there any issues I am missing?

Wednesday, February 3, 2016

Avoiding tax hassles in January.

We are still alive here at E&S Entrepreneur Advisors LLC!  It was a hectic couple of months so no time for blogging.  We got all the payroll taxes filed including all the W2s.  The State of Wisconsin changed its requirements so we had to submit the W2s to the SSA by the end of January instead of the end of February as the State required employers to submit the W2s to them by the end of January and it has to be the SSA file.  That added a lot of work for us in January.

We also ran into some snags with 1099 filings as the State of Wisconsin has obviously tightened its screening of 1099 submissions.  What we ran into was the EIN or Wisconsin ID numbers and business names on the 1099s not matching the State of Wisconsin's records.  A few of these were typos on our part which we corrected at no cost to the client, but several were due to the names in the state records not being accurate.  We have several clients who set up their own My Tax Accounts for the state and did it in their personal names instead of their business name.  When we filed the W2s or the 1099s, the state kicked them out because the names didn't match.  We will be working with our clients to fix this, but a lesson for all you new entrepreneurs out there: get expert help setting up your tax accounts.

We also ran into some issues with the W9s our clients have for their service providers.  For years, sole proprietors and single member LLCs obtained EIN for their businesses so they wouldn't have to use their social security numbers on the W9s and other official documents. This was a great way to prevent identity theft.  Unfortunately, the IRS wants to match the dollars on the 1099s to the dollars reported on income tax forms and the numbers used on the income tax forms for sole proprietors and single member LLCs are social security numbers.  So, all you sole proprietors and single member LLCs and all of you who collect W9s from them: they must have the person's social security number on them and that is the number used on the 1099, not the EIN.

For all you newbies: a W9 is a document which lists your name, your business name, address and tax ID number.  It is used for a business to business relationship much like a W4 is used in an employee-employer relationship.  A business is required to send a 1099 form to the state, the IRS and the individual to whom the business has paid $600 or more for services in a year. Service includes rent which many are not aware of.  This must be sent to any provider who is not a corporation so that is why the W9 is important and it is important that it is filled out correctly and completely.  You don't need to send a 1099 if the service provider is an S Corp or C Corp but you do need the W9 on hand to show that is why you didn't send one.  Another tip: this only pertains to providers you paid via check, cash, ACH transfer, bill pay (money came directly out of your bank account).  If you paid with a credit card, you don't have to send the 1099 so if you don't want to bother with 1099s, pay with a credit card!  The best time to get the W9 is when you owe the provider money-tell them you can't pay them until they provide the W9.  That will give them the motivation to provide it to you.  Make sure you look it over and verify that it is a social security number if necessary instead of a EIN.  Social security numbers are 999-99-9999 while EIN are 99-9999999.

Any questions: just ask an expert like us.