Many small businesses have become extra innovative and resourceful when it comes to cash flow. Here are some ideas to help make it through the next few weeks or months.
Rearrange your 2020 budget
There are a lot of things you may not need to spend money on this year. They can be re-appropriated to cover payroll if the revenue slows down. Here are a few obvious ones:
- Travel expenses
- Transportation expenses
- Conference fees
- Office utilities should be reduced if you are working from home
- Office supplies that you won’t need to spend on if workers are working from home
Keep in mind that certain transportation expenses and utilities may be covered under the forgiveness portion of the SBA Payroll Protection Program (PPP).
Trim the fat, then go a little leaner if you have to
Some of these may not be too palatable, but they may help to save your business.
- Cut executives’ pay as much as possible during this temporary time
- Freeze hiring
- Offer early retirement
- Ask workers if they want to voluntarily reduce their hours
- Offer extra days of unpaid leave (and require a minimum if you need it to avoid layoffs)
- Cut training expenses
- Cancel dues and subscriptions
- Slash marketing costs
- Cut contractor expenses
- Cut employee benefits
- Put a hold on 401K matches, if allowed
- Cut all other unnecessary expenses
Keep in mind that decreases in payroll and employee benefits may affect the forgiveness portion of the SBA Payroll Protection Program (PPP).
Get the cash flowing
Get your creative entrepreneurial juices going and find a way to boost revenue.
- Move your service to delivery if it works for your industry
- Move your products to those that are in need. Designer masks, anyone?
- Move your service to a virtual version
- Offer a new service
- Acquire and sell an item in need
- Got extra space? Find a renter
Get a tax refund
The new laws provide for a couple of ways you can get a tax refund.
- File your 2019 return ASAP if you’re due a refund and use that money in your business.
- If you have losses from 2018 and 2019, check with your tax professional to see if you will benefit from amending those returns to take advantage of the carryback provisions of the CARES Act.
Speed up your cash flow
There are literally hundreds of things you can do to permanently improve your cash flow. Here are a few:
- Negotiate with your vendors to extend credit or term out your payments to them.
- Work on collections and get your accounts receivable balance lower.
- Invoice faster and tighten the pay terms.
There are many options right now to borrow money. PPP might be the best game in town, but it’s not the only one.
- Take money out of your 401K to use in your business.
- Use your stimulus check in your business.
- Use your bank line of credit if it is still available.
- Take advantage of the EIDL, PPP loan, employee retention credit, or the deferred taxes option from SBA and the Treasury.
- Borrow money from a relative or friend.
- Check locally in your bank, credit union, city, county, or state for small business programs.
- If your insurance premiums are based on Revenues or Payroll, such as Workers Compensation, you may be able to request a refund of premiums mid-term.
Every penny counts for some small businesses, so use any and all of the ideas above so you can ride this situation out.
And if we can assist you with your cash flow projections or creating or modifying your budget, just reach out.
If you want to create more revenues in your business, you need to create more transactions. Run these figures with your business to see how you can generate more revenue. Learn How Revenues Are Transactional with Rhonda Rosand, CPA, and Advanced Certified QuickBooks® Pro Advisor of New Business Directions, LLC.
Do you remember the days when you got a report card from school? Now that you have a business, your business has grades as well. It’s up to you to calculate them. Here are some grades or key performance indicators that you can compute for your business to give it a report card of its own.
How successful is your business from a financial standpoint? These financial ratios can help you give yourself a grade.
This is the difference between current assets like cash, receivables and inventory and its current liabilities such as accounts payable and credit card debt. It measures the organizations ability to meet its current obligations. A 2 to 1 ratio will get you an A+.
Return on equity
This ratio measures profitability as it relates to the investment or money you have tied up in your business. The formula is net income / average equity. An ROE of 15 percent or more is an “A” for your business report card.
Return on assets
This ratio measures profitability as it relates to your business assets. The formula is net income / total assets. An ROA of five percent or more is an “A” for your business report card.
This ratio measures efficient use of your business assets. The formula is sales / total assets. This number should be high for low margin businesses and low for high margin businesses.
How profitable is your business? You might know your bottom line number, but there’s more to it.
Gross profit margin
This ratio measures the financial health of a company as it relates to how much of every revenue dollar is available to cover overhead. Calculate it as follows: (revenue – cost of goods sold) / revenue. The value will be different depending on what industry you’re in, but some say a range of 25 to 35 percent is normal for small business.
Net profit margin
Net profit margin measures how profitable your business is in relation to the amount of sales you have. As an example, a business that can make $50K in profits on $500,000 in revenue is more healthy than one that can make $50K profits on $3 million in revenue. The formula is net income / total sales, and although it depends on the industry, a net profit margin over 10 percent is considered an “A.”
Report cards were important in school, and they’re even more important in business. If you’d like us to set up one for your business with specific metrics for your industry, let us know.
Do you know if your marketing efforts are paying off? More importantly, do you know which marketing campaigns and channels are profitable and which are losing money?
Marketing is one of the toughest areas to calculate return on investment, and one of the reasons is because customers may have had contact with your company in multiple ways before they make a purchase. Other reasons such as a lack of systems are more easily solved and can give you valuable information that you can make smart decisions with.
One main goal of marketing is to acquire leads that will hopefully turn into buying customers and even repeat customers. To start measuring your marketing efforts, we need to find out where those leads are coming from and measure which ones became your customers. That means we need to develop a system that tracks a customer from lead source to sale.
The hard part is that some of this needs to be done outside the accounting system. The good news is that there are many tools and analytics available to help in this process.
One of the first things to do if you don’t already have it set up is to record the lead when they enter your sales process. Enter basic information about them in your CRM (customer relationship management system), and be sure to ask them how they found out about you. This will help you track the lead back to the campaign or channel that they came in on. Once they’ve made a purchase, you can connect the lead to the customer record and track revenue by marketing source.
If your leads come in digitally, there are many automated tags you can set up to track where they originated, whether it was from the web site, a particular web page, a social media account or a link from an email you sent.
An important statistic for businesses is cost per lead, how much it costs to generate one lead for your business. The cost will vary by channel or marketing source. For example, someone coming from your website will cost less than someone coming from social media in most cases.
Once you know how many leads to generate to make a sale, you can start calculating what your marketing budget should look like. More importantly, you’ll be able to forecast your revenue more accurately, too.
While numbers are probably the last thing you think about when you’re doing your marketing, they can be very effective for your bottom line. There are many metrics beyond cost per lead that would be valuable to measure as well. Here are just a few of them:
- Number of leads (in total or per channel)
- Number of press mentions
- Number of direct mail pieces sent out
- Number of email subscribers
- Number of social media connections per platform
- Number of posts sent, number of shares, number of comments
- Total web visitors, new and returning
- Google rankings for keywords
- Number of customer reviews per site, ratio of positive to negative reviews
And as always, if you want help developing these processes and metrics, please reach out.
The start of a new year also means that it’s the perfect time to revisit old business strategies from last year so that you can maximize your revenue for 2019. If your financial numbers were fantastic last year, that’s great! Keep the strategies that worked for you and cut the ones that didn’t.
If your financial numbers weren’t amazing last year, or maybe you’re just interested to see how you can increase your revenue, we have you covered. Here are 10 ways that you can boost your revenue this year:
- Revisit your current prices and make adjustments as necessary.
Many people will tell you that increasing your prices will increase your profits, but that’s not necessarily true. Increasing your prices by a small amount might increase your profits without turning away existing customers, but make sure you research your value and your competitors’ prices and adjust based on what makes sense in your market.
- Bundle your services or products together.
Make your products or services more attractive by bundling them together and pricing them at a better deal than purchasing the services or products separately. Customers who only want one particular product or service should still be able to purchase the product or service à la carte, but offering different packages of increasing value makes it much easier to upsell to customers and increase your business revenue.
- Offer free gift with purchase.
Tacking on a complimentary or free service to your products or services could be the small push needed to close sales. Even better, you could add a complimentary or free service to your highest-quality bundle. As an example, the cosmetics industry has been doing this for decades.
- Start a new product or service line.
If you’re limited to just a few products or services, it’s time to expand. If you mow lawns, offer a leaf collection or snow removal service. If you sell shoes, add socks. If you manage a restaurant, consider offering adult beverages. Expanding the scope of what you’re selling will provide you with additional revenue.
- Expand your geographic reach.
If you’re still only offering services and products locally, consider expanding your reach, especially because the internet is so readily available nowadays. Think about which services you can offer virtually; some may require you to invest in cloud-based delivery systems. If you only sell products at a physical location, ecommerce is a huge industry and you could definitely increase revenue by having a storefront online.
- Learn to say “no” to bad clients.
This may seem counterintuitive, but learning to turn away bad clients is really important. When customers are unresponsive, ungrateful, unreasonable and just take up too many of your resources, you have to realize that they are unprofitable. By turning them away, you can devote more of your attention to building relationships with your best customers and creating new, profitable opportunities.
- Make your online presence known.
Everyone uses search engines and social media to find the right business to serve their needs, so make sure you can be found online. Create a website for your business and make sure you have business pages on social media platforms like Facebook, LinkedIn and Twitter. You’ll have to develop some marketing strategies and optimize your site to rank high, but, when done right, these channels can drastically impact the amount of revenue you receive.
- Manage your online reputation.
When you have many good reviews, your credibility goes up and your business is more appealing to potential customers. If your clients leave you an amazing testimonial, it’s a good idea to ask them to post it online as well—especially on Trip Advisor, Yelp, your Facebook Business Page, and Google Reviews. On the other hand, negative reviews will look bad to potential customers and can negatively impact your revenue, so make sure you respond appropriately to the review and show potential consumers that you care about getting things right.
- Encourage customers to sign up for a continuity program.
Do you have loyal customers? Reward them by offering a membership or continuity program with VIP benefits. Retail, restaurants, and service businesses can set up privileges like faster service, discounted prices, and frequent purchase rewards that many consumers will pay a small monthly fee for.
- Encourage customer referrals by building and nurturing relationships.
Connect with customers and build strong relationships through effective communication, providing exceptional service, getting feedback, addressing concerns, and showing appreciation. Doing so can increase repeat customers, customer referrals and your business revenue.
If you’re looking to boost your business revenue this year, definitely give these strategies a try. If you would like specific suggestions for your business, please reach out.
One of the biggest challenges for small businesses is managing cash flow. There never seems to be enough cash to meet all of the obligations, so it makes sense to speed up cash inflows when you can. Here are five tips you can use to get your cash faster or slow down the outflow.
- Stay on top of cash account balances.
If you’re collecting money in more than one bank account, be sure to move your money on a regular basis when your balances get high. One example is your PayPal account. If money is coming in faster than you’re spending it, transfer the money to your main operating account so the money is not just sitting there.
- Invoice faster or more frequently.
The best way to smooth cash flow is to make sure outflows are in sync with inflows. If you make payroll weekly but only invoice monthly, your cash flow is likely to dip more often than it rises. When possible, invoice more frequently or stagger your invoice due dates to smooth your cash balances. Or consider changing your payroll schedule to bi-weekly.
Take a look at how long it takes you to invoice for your work after it’s been completed. If it’s longer than a few days, consider changing your invoicing process by shortening the time it takes to send out invoices. Email invoices to your customers with a payment link. That way, you’ll get paid sooner.
- Collect faster.
Got clients who drag their heels when it comes to paying you? Try to get a credit card on file or an ACH authorization so you’re in control of their payment. Unless you have a compelling business reason, there is no need to extend 30 days to pay you. Change your payment terms to Net 7, 10 or 15 days.
Put a process in place the day the invoice becomes late. Perhaps the client has a question or misplaced your bill. Be aggressive about following up when the bill is past due. Turn it over to collections quickly; the older the bill is, the less likely it is to get paid.
- Pay off debt.
As your cash flow gets healthier, make a plan to pay off any business loans or credit cards that you have. The sooner you can do this, the less interest expense you’ll incur and the more profit you’ll have.
Interest expense can really add up. If you have loans at higher interest rates, you might try to get them refinanced at a lower rate, so you won’t have to pay as much interest expense.
- Reduce spending.
You don’t always have to give up things to reduce spending. Look at your expenses from last year and ask yourself:
- What did you spend that was a really great investment for your business?
- What did you spend that was a colossal mistake or waste of money?
- What do you take for granted that you can cut? What services are not being used?
- Where could you re-negotiate contracts to save a little?
- Where could you tighten up if you need to?
Managing cash flow is always a challenge, and these tips will help give you a little cushion to make it easier. If you would like us to help with specific suggestions for your business, please reach out.
Today is the perfect time to think about your business goals and where you want to be one year from now. As year-end wraps up, you’ll soon know your financial numbers for 2018. You’ll then be able to evaluate how you did and map out a new plan for 2019.
If you’re like many small business owners, you may have started your business without a business plan. Most businesses don’t need a long 20-page document that will just gather dust on a shelf. But you might want to consider putting together a short, 1- to 2-page concise document that includes the basic components of a typical business plan: mission, vision, strategies, and objectives.
A mission statement describes what the company is in business to do. And while you could simply state a mission similar to “Our mission is to sell our products and services,” you may want to think bigger than that in terms of how you want to be known or to impact more than your customers.
A vision statement describes your company’s future position. It’s what you aspire to be. It could again be, “Our vision is to sell more products and services than any other business.” Or it could be more inspiring and uplifting.
Your business strategies support how you’ll get from where you are to what is stated in your mission and vision statements. While there may be many ways to accomplish your mission and vision, strategies are the approaches you’ll take to get there.
Goals are measurable destinations with a timeline that are created from your strategies. Objectives finally get down to the nitty gritty and state the tactics and action plans you need to execute to put all of this work into play.
Each of these items can be written out on a few lines, taking up all together no more than a few pages. The benefits of having a concise business plan are many: if you think of an idea you want to do, you can check the plan to make sure your idea falls under your vision, mission, and strategies that you’ve laid out for the year. If it doesn’t, then you’ll know that your idea would take you off track from your plan, and you know how easy that can happen these days with all of the distractions and options available to us.
You may want to add additional sections to your plan depending on your strategies. If you plan to launch a new product or execute new marketing strategies, you might want to add a Market Summary section. If you seek new funding, you might want to have a section on funding options. With business planning, it makes sense to do what’s relevant, and nothing more or less.
We wish you the very best in 2019, and if we can help you with the financial portion of your business planning, please reach out.
Whether you call it bacon, Benjamins, or big bucks, cash – having enough of it – is key to running your business. Here are five tips related to managing and getting the most out of your business cash.
1- All banks are not the same.
Choose your bank wisely, and don’t be afraid to switch if you need to. Banks know they have a “high switching cost,” which means it’s one big time-consuming hassle for customers to change banks.
A couple of things that are important when choosing banks (some of which we never knew to ask five years ago) include:
- Is your accountant able to connect your accounting system with free bank feeds, saving you hours and hours of accounting work?
- How automated is your bank? The more automated, the fewer errors, and the more likely the bank is to have competitive services, features and prices.
- What is their policy on holding large deposits?
- Do they offer ACH services?
- Does your payroll withdrawal need to be approved each pay period?
Accountants have experience with banks, so if you are in the market for a new one, feel free to reach out and ask us our opinion on the easiest bank to work with.
2- Keep the number of cash accounts to a functional minimum.
Certainly, you’ll need at least a business checking account, often a business savings account, a business PayPal account, and perhaps a petty cash fund. You may also want a separate account for payroll; a lot of companies do. But if you need more accounts, there should be a functional business reason to support them. That’s already a lot of accounts to reconcile and keep track of each month.
The same is true of credit card accounts. It’s the keep-it-simple approach.
3- Reconcile all of your cash accounts every month.
Keeping all of your cash accounts reconciled each month is a good idea. If a bank error, accounting mistake, or even fraud occurs, you can catch it and get it resolved more quickly than if you delay.
You’ll also have more accurate information about your balances and can move and manage your money better.
As you learn your balances each month, you can also move money around. Unless you spend a lot out of PayPal, plan to move that money to pay off debt or into your checking account on a regular basis.
4- Maintain a cushion in your checking account.
If your checking account hovers close to zero more often than not, you may be wasting precious time watching your bank balance instead of spending time to manage your business. If you make a small error, you may get hit with costly overdraft fees, making your cash situation even worse.
Instead, consider depositing a fixed amount, like a cushion, that you never spend. You won’t get overdraft fees, and you won’t have to watch your balance so closely. You may give up some interest income, but the time freed up and the reduced worry will be worth a few extra pennies.
5- Watch your liquidity.
Cash is to business as water is to people; we can’t live without it. Make sure you have enough to cover future obligations, and when possible, build up several months of reserve for emergencies. Anything that you can liquidate quickly, such as accounts receivable, can count toward this fund too.
Try these five cash flow tips to keep bringing home the bacon in your business.
Learn How Revenues Are Transactional with Rhonda Rosand, CPA and QuickBooks® Pro Advisor of New Business Directions, LLC. If you want to create more revenues within your business you just need to create more transactions! New Business Directions, LLC specializes in QuickBooks® set up, clean up, consulting and training services, coaching small…
There are a lot of deadlines that come with running a business. Missing some deadlines can have serious financial implications to the health of your business. Let’s take a look at how much you’ll save by being on time with the following deadlines.
One of the toughest deadlines of all, making payroll, is essential to keeping employees happy. Making payroll tax deposits on time is even more crucial. You’ll save the following in penalties by staying on time with payroll deadlines:
- If you’re 1-5 days late with payroll tax deposits, the penalty is two percent of the payroll.
- If you’re 6-15 days late, you’ll pay five percent in penalties.
- If you’re more than 15 days late, the penalty goes up to 10 percent.
And that’s just the federal penalties, not your state penalties.
Everyone knows about the April 15th deadline to file your taxes. Some people file an extension and have until October 15th. However, we need to remember that the best estimate of your tax liability needs to be paid by April 15th even if an extension of time is granted. Failure to correctly estimate and pay income taxes leads to a penalty that is calculated by multiplying the number of days the tax is late by the effective interest rate.
If we’re slow to make our accounts payable payments, our vendors may tack on a penalty, but the larger consequence is the effect on our credit score. Plus, you will get better pricing from your suppliers if you pay on time and within terms.
It’s so easy to let internal deadlines slide, but they may be the most important of them all. To move your business forward, set goals with deadlines so that you can measure your results.
Here are a couple of tips to master your deadlines so you can avoid the above consequences:
- Keep a list of deadlines, or hire someone to help you with them.
- Make a mental commitment to yourself that the deadline is important to your business.
- Set aside the time you need to prepare for the deadline. Block time on your calendar and stick to it.
- Remind yourself of the consequences of missing the deadline.
- Try not to overcommit. Delegate other tasks when possible.
- If possible, automate or systematize the processes around the deadline so that it’s met automatically.
- Stay up late if you have to in order to meet your deadline.
- Celebrate when you meet your deadline!