Managing cash flow

When I was a young accountant, someone gave me a button that said "I Love Cash Flow".  I had it pinned to my cubicle and I often teased my co-workers when they would ask to borrow money for lunch near the end of the month that they, as CPA's, should be able to manage their personal cash flow better!  Cash flow management has many components and we will address them over the next few weeks.

 A business can take a couple of simple steps to manage its cash flow.  The first thing you can do is to compare the terms your vendors offer to the terms you offer your customers.  If your vendors expect to get paid in 15 days but you give your customers 30 days to pay, you are going to run into problems.  A business should consider what its competitors are offering as far as terms go, whether the customer has earned lengthier terms and what kind of flexibility it has with its vendors.

It is not unusual to require payment up front or at the time of service for new customers and then to offer extended terms once a good relationship has been established.  It is a good idea to do a credit check on any business you are considering offering extended terms to. 

If your vendors are unable to offer lengthier terms and you feel you must offer longer terms to your customers, a line of credit may be the answer.  This will provide your business with the funds to pay your vendors and then you can pay it back when you are paid by your customers. 

Receivables and payables are just two components of cash flow.  We will discuss others in the weeks to come so stay tuned.

Why Do Your Customers Keep Coming Back?

Why do your customers come to you for the first time and why do they keep coming back? Understanding that basic question is crucial to the continued growth and success of your business. The question is first asked when you are initially planning your business to help you create your focus and determine your branding and marketing strategy. Understanding what sets you apart from your competitors is what enables you to target your first clients.

This question needs to be asked continually throughout the life of your business. Once those first several customers are hooked, you need to ask them what brought them to your business and what is important to them so that you are sure that you are focused on the right things. Listening and adjusting to this answer is what leads to return customers and bountiful customer referrals. Once you know this answer, then you can integrate it into your sales pitch to ensure that you continue to attract new business.

It is also critical in other areas of business management as well. I am working with a client at the moment on restructuring their incentive pay system. While attempting to design a pay incentive program which accomplishes the operational objectives that we are striving for, we also need to keep the customer service question at the top of mind. We can't have people control costs at the expense of not providing to customers that very thing that is most important to them so we need to incorporate that into the incentive program as well.

Why do your customers come to you for the first time and why do they keep coming back? Understand this and you will thrive!

What Do You Need to Do Before Year End?

Yes, we know it is only the beginning of October, but this is the time of year we like to get our clients starting to think about the end of the year.  Some procedures take time and others require setting up meetings so it is good to get a jump on the process.  This is the time to compare your actual results to your current budget.  This will give you some of the information you need as you create next year's budget.  Consider what the variances are and what caused them. After you get an understanding of where you are now, think about where you are going next year.  This is a good time to touch base with your major customers and find out that their plans are for the next year.  Do they anticipate purchasing the same amounts next year or more? Or less? Based on the results of these conversations, you will want to update your marketing plan.  This will help you set your milestones and metrics so you can achieve your sales goals. The next step is to create your budget for next year. A good budget is like a good map and it will help you navigate through the next year. 
You  also need to meet with your tax advisor. This is the perfect time for your advisor to see where you are so you have time to make decisions and adjustments before the end of the current year.
Getting these projects done now will allow you to concentrate on the end of this year and start 2012 with a bang!

My how time flies.....

It is the middle of September.  How did that happen, it was just summer!  In the flurry of end of summer activities and getting kids back to school, we didn't get this blog updated.  We realized that last post was 22 days ago and we were amazed that it had been that long.  We failed to follow our own protocol-normally we divvy up the task of writing the blog articles and then we put it on our calendar.  We have been pushing hard to get two business plans completed so our clients will be ready to open their new business and so we let some of our planning and procedures slide.  This, of course, let's all of you see that we are human and we do fail at times.  It also gives us a chance to reiterate how important it is for a business to plan and organize.  We will be sitting down today to assign the remaining weeks of this year and get the writing time on our calendars.  Do as we say and as we usually do!

No Need to Budget!

“I have never made enough money to need a budget.” I heard a variant of this comment at least three times this month. I want to dispel this myth. If you are ever to get ahead in life, EVERYONE needs some sort of budget. Before my daughter went away to school this fall I sat down with her and we looked at the money she had saved, what other sources of income (i.e. jobs) she might have coming in, and developed a budget for her to follow. Since her finances are simple, we set her up on Mint.com so that she could easily track her spending versus budget.

Tracking expenses and budgeting needs to be done at EVERY level of income in order to get ahead in life. I have seen people not able to make ends meet on $20,000 of income, on $50,000 of income, and on $100,000 of income.

The discussion of setting a budget for small businesses often leads to the discussion about personal budgets as so many micro entrepreneurs’ personal and business financial positions are intertwined. People don’t track personal spending and don’t set personal budgets and therefore they rebel against these tools for their business as well.

If you are ever going to succeed, you need to be purposeful in what you do. Planning and budgeting is a tool for being purposeful and not just letting your financial position unfold. It is the difference between controlling your destiny and letting it happen to you. This is true in both the personal and the business realm.

People don’t track expenses and use budgets because it is not a FUN activity. It requires self-discipline. I am a financial analyst and have utilized these tools my entire life and I still grumble every time I sit down to work on my family finances. The feeling is universal! However, the rewards are great!

People don’t like budgets because they fail to account for surprise expenditures and they don’t have savings to fall back on. The key is to make savings a priority with each paycheck so there is an emergency fund to dip into if necessary. Be creative if necessary to come up with the extra. My husband always empties the change out of his pockets at night and does not put it back in his pockets in the morning. Early in our marriage I used to scoop up that change and that was the beginning of our savings.

So here’s the quick technique in a nutshell. It is nothing that you haven’t heard before, but it is a dose of common sense and perhaps brutal reality.

1.       Discuss as a family your goals and priorities for this year, for five years, for long-term.

2.       Stop using credit cards to pick up your extras. Credit cards should only be used with careful foresight and should be paid off in full every month. Using them to shore up your lack of income only leads to worse financial problems.

3.       Track all of your expenses so that you understand what each member of your family is spending money on.

4.       Write down your monthly income.

5.       Decide what portion of your income needs to be put into savings (emergency fund first, then short-term and long-term goals) and make that happen. This is a key point to your budgeting success!  There MUST be some surplus somewhere to cover the unexpected. You CANNOT say that there is nothing left for savings. Savings must come BEFORE your expenses.

6.       Make sure that your savings + expenses are not greater than your income. You will only continue to dig a deeper hole if you spend more than you earn. If savings plus expenses are greater than income then  you need to make some changes (and the answer is NOT to cut out savings):

a.       Take on a temporary second job until you reach your goals of paying off old debt or building up the initial emergency fund.

b.      Cut your expenses. This could simply mean cutting out your daily coffee or cigarettes, but if things are really tight it could mean making tough choices about where you can afford to live and what you have and what activities your kids participate in.

Make the changes necessary to live within your means, to manage your finances with purpose, and to get ahead in life. 2011 is your year!

Operations plan for your small business

Last time we talked about the value of preparing a business plan for your small business. We focused on identifying your target market and determining how your product/service is different from your competitors. This week we are going to talk about operations and how to insure your small business can run smoothly at start-up and as it grows.


Many small businesses begin as a one person shop which means the owner tries to do it all. This is often dictated by the amount of working capital available but it can also be a good idea to insure that the owner knows how he/she wants each job performed. Doing all the work yourself allows you to determine what skills will be needed when you get the point where you will hire employees.

One drawback of doing everything yourself is finding the time. We recommend charting out all the tasks that need to be accomplished in your business and then assigning a time: daily, weekly, monthly, etc. We also believe every business should use a calendar and create set times to accomplish these tasks. Pick the times you feel the strongest to get those jobs which you find distasteful done: bookkeeping, collections, bill paying.

We also recommend writing job descriptions for all the tasks you are performing. This allows to get everything on paper and really think about how things should be done. The act of writing out the jobs can help you streamline and gets the work done as efficiently as possible. It also allows you to be ready to hire employees and train them much more quickly.

Setting your business up with a good operations infrastructure will make running your business easier and more fun! Any suggestions out there as to techniques which have worked well in your business?

Business planning

Beth and I were interviewed by a reporter for our local newspaper recently and he asked us for the number one piece of advice we would give to someone looking to start a new business. We told him “Have a plan”. This is probably not surprising to many people since writing business plans is a service we offer and we teach a class which helps prospective business owners write their own business plan. We picked this as our number of piece of advice because we have seen the failures and frustrations that come from a business lacking a good plan.


A good business plan is not just to give to a lender to get a loan for your company. Having a plan allows you to think through all the keys items and issues a successful business needs. I read a great article once which stated that “starting a business without a business plan is like driving on a winding mountain road at top speed wearing a blindfold.” What a great analogy! You might drive off the cliff and crash. You might end up somewhere but you don’t know where and it may not be where you wanted to be.

Today we will focus on the marketing end of the business plan.

A successful business is one that sees an unmet need in its community and fills that need. That means if you are looking to start your own business, you need to offer a product or service that meets a need in you r community-whether it is a regional community or an on-line community. Having a great product or service is only part of the equation for success. The next part is your target market: who will you be offering your product or service too? You need a specific target when you are selling and having a good business plan will help you identify this target. This will require some research on your part to determine who needs your product or service and where they can be found.

Once you have identified your target market, you need to figure out how you will find them or how they will find you. A truly useful business plan has a solid marketing plan within it. This is a specific blueprint of who your customers or clients will be and how they will find you. Are you going to advertise on bill boards, in magazines, in the newspaper, on television, on the internet? How much will each ad cost and how much can you afford? We will get into financial matters in a later article! You also need to think about how networking, referrals and testimonials will work for your business. Have you investigated all the social media outlets and determined how they will work best for you? A new business owner not only has limited financial resources, she also has limits on her time so a solid plan for networking is important.

Another key component to your business plan in laying out the metrics you will track to determine the effectiveness of your marketing. Ideally, you will be able to determine how each customer or client found you and you will use this information to decide where your marketing dollars and networking energies will be focused in the future.

Planning out who you will be selling to and how you will connect with them will help you focus your time, money and energy as you establish your new business. A good business plan will help you do just that. We will get into pricing, the operations plan, and other financial matters next…stay tuned!