Cash flow and an entrepreneur community

Sometimes entrepreneurs need community, especially solo entrepreneurs, when it comes to handling tough business questions and decisions like cash flow.

There is a new web site for entrepreneurs based on interviews and business articles generated on the web. It's Runningasmallbusiness.net and just launched yesterday.

Go ahead and browse it to find articles related to business operations and topics like diversity in the workplace; accounting and bookkeeping; marketing and sales; and starting a business. There is also a section for business news.

Runningasmallbusiness.net will also add links to website solutions for small business owners and growing enterprises. It features my writings (Don Simkovich) and will contain interviews with business owners. A forum will be up and improved for entrepreneurs to connect in community and learn from each other.

Managing Cash Flow Basics

Making sales is vital for a company's existence, but managing cash flow properly is the true test of how well a company operates.

Here is an excellent overview of cash flow for a company coming from the Agricultural Extension Service of the University of Tennessee. It was published in 1999 by Rob Holland, Assistant Extension Specialist, Agricultural Development Center and is taken from this document titled Understanding, Planning, and Managing Cash Flow.

Cash flow is primarily the difference between cash coming into the business and cash going out of the business during a given period.

Here are ways to manage cash flow:

1. Decrease the amount of money owed to you-- get customers to pay their bills
2. Cut out excess overhead expenditures
3. Keep a close eye on inventory
4. Don't overpay taxes
5. Review owner's compensation - secondary income may be valuable to the success of many small business ventures in the early years
6. Maintain tight reigns on billing and collections
7. Consciously structure the payment of bills - pay bills closer to the deadline but do not incur late fees
8. Consider biweekly or monthly paychecks
9. Update company procedures to make process more efficient and cost-effective
10. Plan ahead - he advises using cash saving activities such as renting instead of buying or purchasing used equipment versus new equipment, finding cash paying customers and quick paying customers versus giving credit and late payers.
11. Develop a good record keeping system

Cash flow management overview

Cash flow management is a vital function for any business or organization having to pay bills, employees, and vendors. Having a concise overview of cash flow, how cash functions, and the needs for cash flow management may escape many business owners.

I highly recommend reading this article and re-reading this article "Cash Flow-In and Out" by Nancy Blondin, CPA, writing on the Website "Tennessee Society of Certified Public Accountants".

Here is an excerpt on managing cash flow:

"Cash is needed to acquire supplies, equipment and other assets that a business requires to accomplish its business purpose. Cash is needed to pay wages, operating expenses, taxes, interest and principal to creditors, and dividends to stockholders. It allows management to carry on its business. A thorough understanding of cash and how it flows in and out of an organization will allow you to answer the following questions:

1. How much cash does my business have?
2. How much cash does my business need to operate, and when is it needed?
3. Where does my business receive its cash, and spend its cash?
4. How do my income and expenses affect the amount of cash I need to expand my business?

If these questions can be answered, you are truly managing your cash flow."

The article covers:

• Cash Needs and Policies
  
• Financial Statements
  
• Net Income vs. Net Cash Flow
  
• Cash vs.Liquidity
  
• Cash Budget
  
• Techniques
  

Read portions of the article on cash flow, bookmark it, and read it again.

Making a profit: list all expenses

Businesses are supposed to do more than make money. A business is supposed to make a profit.

List all company expenses - monthly and infrequent expenses. Not knowing all expenses can paint a false sense of profitability.

After listing all expenses, determine income and what customers brought in what percentage of income.

A friend of mine has 30 clients and he estimates that 80% of his business comes from 12 - 15 of those clients. He does well keeping up with his most profitable clients. But because he finds it easiest to spend time with them, he doesn't get out to generate new business.

Another expense: understanding where time is spent.

My thoughts on making a profit are inspired by reading the book by George Cloutier Profits Aren't Everything, They're the Only Thing and writing about it briefly on my column in Examiner.com as the LA Business News Examiner.

Do you know your expenses or have a good idea of what they are?

If not, set aside the time to write them down and review receipts to get a handle on cash flow for your company.

Will TARP Money Provide Cash Flow for Small Business?

Loans to small businesses are now the focus in Congress. This post is courtesy of Commercial Debt Solutions operating in Southern California.

“In response to growing criticism from the Republican Party members and increasing dissatisfaction of the U.S. citizens with the administration’s handling of the country’s economic crisis, on Monday, July 13^th, the House and Senate will start debating a proposition to use up to one hundred billion of the TARP dollars as guaranteed, minimal-interest loans for small businesses.

"As being proposed, the U.S. Government will guarantee 100% of these loans to the lenders for up to ten years; loans are to be made available to businesses that have less than 250 employees total, or less than 100 full-time employees; and funds are to be distributed through a special program through the Small Business Administration. If approved, funds might become available as early as this fall.

"As a strategic partner with SCORE and a resource partner with U.S. SBA, Commercial Debt Solutions will remain current on all developments related to this proposal and will be equipped to assist its qualifying clients in securing these loans, should they become available.”

For more information, contact Commercial Debt Solutions directly at 1-877-684-3631.

Commercial Debt Solutions, headquartered in Beverly Hills, is a performance-based firm working to assist companies in Southern California with their financial needs.

Invoicing Customers: Your Cash Flow, Your Reputation

When you work for a large corporation and a specific department handles payroll, invoicing and those tasks behind the scenes you may not realize how important it is to invoice customers on time.

When you're a smaller business, a management consultant, or self-employed then you realize how important it is to invoice customers when work is completed -- it's your cash flow, your income, and the lifeblood to your business.

But there's another reason sending an invoice on time is important - it shows your customers that you're serious about your income and they should also take you seriously.

Here are some other reasons:

• Billing promptly reduces confusion - it states the project is done, service provided
• It can open the door for clients to ask questions if needed
• It reflects a level of compentence for your operation
• Billing pumps new life into your operation
• An invoice can serve to brand your company
• It shows you offer value

While there may be other reasons, I must also confess that taking time to generate an invoice isn't one of my favorite activities. There are various types of software such as Quickbooks, Zoho online and others to use. Or you can also use a simple Word document and customize a header and footer.

I use the month, day and year as the invoice number, too such as 052109 to show the invoice date as May 21, 2009.

So take time to send an invoice. You'll be glad you did!

Cash Flow This Quarter

The last quarter of 2008 is here. How is your cash flow?
And are you organized to increase it?

Here is how I handle and project my cash flow.

I've just launched Right Touch Marketing & Media to service the marketing and communication needs of companies -- from individuals to middle managers in corporations.

Positive cash flow is a challenge for all businesses, but it is especially criticial when starting a service company like mine.

Think in Categories

#1 Leads . . . how many leads do you have available? Are they warm leads or cold leads?

#2 Lead Meetings . . . how many lead meetings do you have set up in October, November and December?

#3 Proposals . . . how many proposals do you have going out the door? How many do you expect to go out the door during this quarter?

#4 Sales . . . how many sales do you expect to close during this quarter?

#5 Projects . . . is your company handling client projects effectively? This is the reason you're in business. Jobs that are done well can result in more leads through word-of-mouth referrals.

#6 Customer relations . . . this overlaps with the above. But staying in touch with customers/clients

#7 Evaluation . . . schedule a time to evaluate your company's overall operation -- from marketing to technical needs to customer relations.

There it is! That's all!

Certainly, implementation is tough. So go back and see what are your trouble spots? Do you have "power partners" who can help you -- whether from within or external?

For me, thinking in categories, or a complete cycle, can reduce the inner tension and worries and show me where I need to take action.

Here's to a successful October and a successful last quarter of 2008.

Bailout, Leadership, Credit Card Debt and Corporate Greed

As the news reports begin to settle in the weeks ahead over the bailout, I'm pausing to offer my thoughts on this major catastrophe and hope for the long term.

First, it should be painfully clear to honest people about a failure for politicians in Washington, D.C., to lead effectively. Certainly, both parties are at fault and certainly I was especially disgusted by Nancy Pelosi when she introduced the bill for a vote earlier in the week.

She used her platform to blast the economic policies of President Bush. Great job, Nancy Pelosi. During a critical moment in the nation's financial history, she's intent on dividing and broadcasting even more vehemently her already caustic opinions about the President.

She should have struck a conciliatory tone. But, no. She was selfish. She wants power and she wants it now! Oh, and when she's got her back against the wall in the future, she'll cry out for bi-partisanship.

But maybe her speech is an indication of where the problem lies: Failed leadership in government, government agencies, private institutions and individuals able to rack up credit and worry how to pay later.

We live in an era where it's easier to point fingers rather than work on long-term solutions. Thanks, Speaker Pelosi.

I was speaking yesterday with a woman who used to work at Countrywide. She remembered when the company celebrated $ 4 billion in loans! Associates were under pressure to make loans. The problem: many of the loans were going to default.

I spent two years recently selling roofing to homeowners for Home Depot. It's a company I like but during that time, I saw the pressure in the stores for the managers to push credit on shoppers. They needed sales now! They needed numbers now! Well, they're not getting the sales and numbers today so maybe they'll have to plan for the long term.

Hourly employees were given quotas they had to meet. And, sure. It encouraged buying . . . but from a standpoint of people going in to debt.

And then I remember the slew of letters that came flooding our mailbox promising 1% interest payments.

But I was thrilled with our 6% fixed . . . and I still am. I ignored those letters.

So maybe the system will correct itself and loans will return to the old fashioned days of when homeowners had to save up 10% or 20% down and were rewarded with great rates if they did.

But saving requires long-term thinking. Working through solutions with members of both political parties requires diplomacy, humility and long-term thinking.

We can hope and pray that building for the long term future will begin to permeate our society instead of fighting for immediate gratification.

Cash Flow for New Businesses

New businesses chugging along in the first 2 years need to preserve cash flow above all else:

• get invoices sent out once projects are wrapped up
• make sure customers pay on time
• don't get tied up in inventory
• don't pay bills too early
• pay vendors on time
  
  Here is an article about the importance of an initial cash flow for new businesses you might find helpful.
  
  "Why an Initial Cash Flow is Important.

Remember, the cash balance and the bank balance are two different ways of looking at the same issue. The two will probably never match up since checks and payments are in circulation.

Also, look ahead quarter-by-quarter. What do you expect the cash flow situation to be for your new business?

Cash is king. If you have partners, have weekly meetings to review the cash balance, bills, invoices expected in and payments to split.

If you don't have partners, find a friend or someone you can report to on a weekly basis. Presenting the facts gives you a clear idea and understanding about the cash flow in your business.

Your income, your projects, your expenses

Here are tips for managing your cash flow this month in a service business:

1. Do you know the invoices that are due? Will they be paid on time?

2. Do you know what projects are 75% or more completed, 50% or more completed?

3. Have you budgeted or had other budgeted for expenses this month and in to August?

4. What do you plan to spend for your marketing in July and August? When do you envision this will pay off and generate new leads?

5. Are your accounts solid or are any in danger of being lost? If so, are there new ones in the wings to replace them?

6. Are your customers fairly well satisfied? Have you thanked them for any referrals?

7. If you're running in to any potential problems meeting payroll, have you let others know?

PR can create cash flow for businesses

Ever wonder how PR can lead to sales . . . let's translate that to cash flow for a company. Here's one way: contests.

I don't remember the way I came across this blog on Beck's beer but I did . . . and I've added the link to my sidebar. But apparently Beck's was having a contest on writing a blog and the winner gets to live in Amsterdam. Here's what John McClellan of Boozecoma had to say about creating a blog for Beck's:

"The Beck’s blog should be like the Farmer’s Almanac: a 365 day guide for how to enjoy Beck’s, but funny, sly and tough enough to steal the Farmer’s girlfriend."

I thought comparing the Beck's blog to the Farmer's Almanac was really clever. But shouldn't a good corporate blog be that? A way to help the readers live with useful information.

Good PR means imparting value to customers and potential customers. Once they appreciate the value, sales will ring up, hence, more cash flow.

Hey, I might even drink a Beck's this weekend after reading this.

Collecting Old Invoices - Invent a Name

Collecting on invoices

is a priority for any business so cash flow doesn't get too tight. But what happens when clients don't pay? How about creating an alter ego to get the message across that you need to get paid!

A small business where the managing director is someone I've known has had trouble collecting invoices from clients - many of whom are much larger companies.

Because the managing director is also involved in helping complete projects for the clients, he felt awkward coming down too hard on them for letting invoices go 60 days, 90 days and longer. He didn't want to give the appearance that the company couldn't survive without the invoices, but he also needed the money to come in.

So he created the name of someone in accounting who was now responsible for the company's cash flow and collecting on unpaid invoices. The "new person" even had their own email account set-up and sent polite but to the point emails saying the invoices were past due and asking for payment.

So what happened if anyone called asking for the "new person"? Well, the person just happened to be out at the moment.

Calls weren't going to be likely anyway since the client base was small.

How did it work?

The tactic got some response and action on a couple of invoices.

More importantly, it gave the real person responsible to collect an alter ego to hide behind when he needed to "switch hats" by taking off the creative hat and putting on the collection hat.

How do you go about collecting on unpaid invoices and what advice do you have for others? Feel free to share in the comments.

Are Capital Gains Taxes Fair?

Taxing Capital Gains

Real life real estate investing can teach you a great deal about the truth of taxing capital gains.

My wife and I bought an investment property in western Pennsylvania and we fixed it up to re-sell. Of course, if I own it less than a year there's a higher rate for capital gains to sell it.

Is that fair?

Here's an article I wrote about the problem with taxing capital gains and why I believe it can hurt middle income investors. Senator Obama wants to raise capital gains in the guise of "tax relief for the middle income."

I believe his proposals will certainly cause middle income investors like myself to consider whether or not they should invest and sell.

I simply don't believe a capital gains tax is logical, especially if taxes and permits are being paid locally. This week, I'll make it my effort to educate readers about capital gains and the need for lower, not higher rates.

Airline Tickets Cheap . . . Thanks, Northwest!

Our investment property rehab

is going well. All signs are positive for putting it on the real estate market in western Pennsylvania in May which would be a few weeks ahead of the original schedule.

Watch out for little expenses that can rob you of cash flow in any type of investment, business or personal finance situation.

I live in Pasadena, California and the house is in Latrobe, Pennsylvania near my family.

I knew I would have to fly back about 2 times during the process and I was dreading the cost of airline tickets.

But in March, I flew Northwest Airlines from Los Angeles to Pittsburgh for $230 including all taxes. I left on a Tuesday and returned on a Saturday.

This time, I'm flying from Los Angeles to Latrobe's Westmoreland County airport for $217!

I'm leaving on a Wednesday and returning on a Tuesday.

There were no special deals I'm using for the airfare. I simply went on the Northwest Airline web site and plugged in my dates.

I'm taking two flights for what could be the price of one! What a savings and it helps the cash flow today greatly.

Direct mail, telemarketing . . . does it work?

Winning cash flow for a business includes developing new business.

If you rely solely on current clients for a winning cash flow strategy you should be careful. What strategies exist then for winning the cash flow struggle and new business development needs of your company?

So how do you get new business in this age of technology?

Here's how I'm using a sales letter with phone follow-up for a current client:

The client provides managed computer services.

I wrote a letter in the Dan Kennedy marketing style using lively imagery to capture attention regarding the problem.

Then the solution was provided. A Lifesaver candy was attached to the letter.

I'm following up with phone calls to the people who should have received the letter.

I've called about 125 out of 550 recipients during the past three days. Many have remembered the candy and it gave me a chance to joke about it and ease into conversation.

I've been able to set about 2 - 3 appointments with 5 - 7 serious inquiries generated.

The expected return on investment for the project was 1% to 2% meaning it would result in about 5 - 10 sales.

I think we should be able to beat that by the time the project is finished.

The biggest challenge is getting the calls made quickly. Each one is taking about 1 - 2 minutes so I may need to delegate to someone else to help me.

This shows why a marketing mix is helpful: printed sales letter, telephone and web site all combine to get the attention of the target customer.

Direct mail with phone follow-up: consider it as part of your marketing mix.

Cash Flow with Popular Companies

Ever wonder what happened to Krispy Kreme doughnuts?

I have. They don't get talked about as much among the people I know. Apparently they had some creative cash flow strategies that resulted in big problems when it came to putting a true value on the stock. Click on the link above to learn more.

Cash Flow Today

How is your cash flow situation? Whether at work or home, I want to offer tips related to your questions about cash flow or tips you have for others.

I changed the title on the blog after many weeks of strategic thinking -- by taking into account a larger area of interest. Also, I figured I was writing about money on so many posts anyway.

Do you have cash flow tips to help others?

Those tips could be on saving money at work or home.

Those cash flow tips can be on helping others figure out how to increase their cash flow.

I hope you like the new title and I'll be getting back to posting regularly.