Cash flow strategies for small businesses

Without profits and positive cash flow, a business is going to struggle to survive. This is why cash flow strategies should be taken seriously.

Aim for long term financial stability
When setting finance and cash flow goals for the business it is important to aim for long term stability.  Businesses should realistically assess how and when it wants to reach its long term goals.

Don’t forget to consider customers who allow purchases on credit as it will help in forecasting how much cash is coming into the business and whether it will be enough to cover expenses.

Profit first and growth later
Businesses should aim to increase profits in the present and use them to grow the business in the future. Approaching it the other way around isn’t always a good idea, especially for start-up companies.

Be aware of timing
Businesses need to be aware of exactly when money is coming in and when it is going out. Although owners may not be directly responsible for the accounting side of the business, they should at least be aware

It is also important to have a plan in place to ensure that clients pay promptly so that the business can know when to expect a payment.

Improving your elevator pitch

An elevator pitch is the short description you can give about your business in the time it takes to ride an elevator. Your elevator pitch must be brief. It must say enough about what you do so people can easily understand and remember you. And, ideally, you want your elevator pitch to make a positive impression.

It is not easy to develop an elevator pitch. It takes quite a bit of thinking to decide which aspects of your business to mention. Even more frustrating, you have to decide which parts of your company to leave out. Often these can be the things you’re most excited about – a new technology, a great location, the fact you get to go to Europe on buying trips. But if they’re not central to the core of your business, then they don’t belong in an elevator pitch.

Your elevator pitch must not only be short, it must be clear. Unless you’re in a highly technical field, your neighbor or grandmother should be able to understand your business well enough to be able to describe it to someone else.

Your elevator pitch should touch – very briefly – on the products or services you sell, what market you serve, and your competitive advantage. It is often a good idea to use an analogy as part of your elevator pitch, especially if you’re in a new or difficult-to-grasp field. If you’re in an easy-to-understand business, your elevator pitch theoretically could be very short. But you still want it long enough to distinguish you from your competitors.

So go out and find a four-story building with an elevator, ride up and down and practice your “elevator pitch.” That way you’ll be completely prepared the next time someone asks you, “What do you do?”

Questions to ask before applying for a bank loan

The majority of businesses, whether they are only just starting up or have been in the market for a number of years, will need a bank loan at one time or another. However, actually applying for a bank loan requires more than just filling out the paperwork.

Here are some questions business owners should ask themselves before beginning their bank loan application:

Is it probable that I will qualify for the loan?
If you believe that your business won’t qualify for a bank loan, then you will only hurt your credit rating if you apply for a loan you won’t get. Being rejected for a loan can also make it more difficult for a business to borrow in the future.

Will the loan help the business grow?
Instead of using the loan for aspects like routine operating expenses that don’t generate much revenue, owners should consider putting the borrowed money into parts of the business that will generate more revenue and help reduce future borrowing needs.

Are my personal finances in order?
Until a business reaches a substantial size, many banks will rely heavily on the owner’s personal financial statements and credit scores to determine the business’s creditworthiness. This may involve bankers looking at an owner’s personal information like student loans, personal credit card debt and mortgage payments.

Do I have adequate documentation for the loan?
When applying for a business loan, you will need a lot of documentation. Requesting a loan when an owner is not fully prepared makes the business look unprofessional.

Do I have adequate cash flow to repay the loan?
When a business owner applies for a loan, their banker will require the owner’s estimated financial projections for the business. It is important for owners to include their debt repayment plan in those projections.

Guide to successful business borrowing

It is important for businesses to maintain a good relationship with their bank in order to safeguard their future access to funds.

1. Prepare a strong business plan

This is one of the first steps to ensure that the bank will identify it as a low risk business and therefore someone they are willing to give funds to. A solid business plan highlights the viability of the business, information about the experience and success of the owners and managers, expenses which the loan will cover,as well as detailed sales expectations.

2. Establishing a personal relationship

Over time, an owner establishes key contacts within their bank that are familiar with their business and financial needs. Keeping these contacts informed of any changes to the business or cash flow projections before it comes as a surprise will build trust between the bank and the business.

3. Knowing your business inside out

By keeping themselves updated of their own financial status, by obtaining credit reports and public records, business owners will know what research the banks will obtain when deciding on the amount, if any, to loan to the business.

4. Learn the banking language

Understanding banking terms such as credit ratings, cost of capital and other financial drivers will place business owners in a strong position when negotiating the terms of their loans.

5. Keep the adviser informed

Financial advisers are there to advise and will have an intimate knowledge of bank processes. Keeping them posted of any plans or changes will allow them to better advise the business on the best course of action, and ensure that the business will continue to prosper.

Money habits that limit wealth creation

Even high earners can make very stupid (and avoidable) money mistakes.

Use the below examples as a way to look objectively at your money behaviour and how it might be limiting your wealth creation.

Not having a budget
Some people think nothing of spending $1500 on a weekend away, or $800 on a new outfit. But even if you earn $400,000 a year, spending a substantial amount of money each month on purchases and experiences adds up. Not preparing and sticking to a budget is a common mistake among high earners, as many believe that a budget isn’t necessary, given their high level of income. Regardless of how much you earn, individuals need budgets to know where their money goes and what needs to be set aside to achieve their goals.

Peer pressure
Peer pressure isn’t just experienced by teenagers. Don’t be the partner who drowns in non-deductible debt, but takes an overseas holiday once a year or owns the latest model car just because that’s what other partners have and do in your businesses.

Sunk cost fallacy
Avoid being the kind of investor who invests in a project regardless of potential returns. It is quite common for an individual to want to hang on to an investment that is doing badly because they feel both financially and emotionally invested, resulting in them being unwilling to sell.

Tips to speed up invoice payments

Taking care of invoice and billing payments can often be an onerous task for many small businesses. However, very few things are more important in the business industry than getting paid on time, since delays in payments can disrupt a business’s cash flow quite seriously.

Business owners looking for best practice tips to get paid on time should keep in mind that often the most effective solutions are usually the most simple. Owners should make sure that their invoices are accurate, easy to read and include information such as:

• how to pay the invoice

• a clear description of goods or services provided

• the details of any discounts and how they were determined

• information about any outstanding payments

• delivery charges if applicable

If any queries should arise about the invoice or payment, owners should handle them fairly and quickly.

Making only a few simple adjustments to invoices can speed payment from customers so owners can focus more of their time on their business than on their bills. Some techniques to speed up payments include:

• Confirming the correct location and contact details so the invoices reach the right person.

• Clearly stating on your invoice that you reserve the right to charge a set late fee for overdue invoices.

• Contacting customers to tell them what corrections or adjustments are being made to their invoice before sending the amended invoice.

• Quoting any relevant customer reference number customers have provided.

• Including a credit card or online payment option.

Aim for these cash flow goals

It can only take one or two late payments from customers to turn a business’s positive cash flow into a negative one. Maintaining positive cash flow can be a struggle for many businesses, but setting realistic goals for cash flow management can help make a business profitable and generate enough cash to offset monthly expenses. Below are three cash flow goals every small business should be aiming for:

Pay attention to margins: Even though margins vary by industry, there are things an owner can do to ensure theirs is healthy. Controlling the cost of materials, labour, and setting the right price point are three ways of managing a business’s margins.

Have finances in reserve: Business owners should plan to have enough cash to cover at least two to four weeks of business expenses. It is always a good idea to aim for a cushion of 90 days to cover any emergencies like illness, natural disasters or market fluctuations.

Avoid debt: It may be an obvious one, but owners with debt need to try and pay it off as quickly as possible. A good option to do this is lines of credit. A line of credit is different from a loan. It is an amount of money that an owner can borrow when needed, and pay back when it is no longer needed. Owners can use it as a fallback option if there are unexpected cash flow issues.

Keeping your business in tip-top financial shape

Make sure any new financial year resolutions made to keep your business financially healthy don’t fall off the bandwagon now. Here are four tips to keeping it in tip-top financial shape.

1. Know your tax deductions
Keep an eye out when lodging tax returns, so you don’t pay too much. If you work from home, you may be able to claim home office costs such as repairs or cleaning expenses. If you use your personal mobile phone to contact customers or your staff, you could also claim for those calls.

2. Stay cash-focused
It is important for a business to stay focused on keeping the cash generation rate above the cash burn rate. Try implementing business models that enable you to collect most of your payments upfront. Invoicing your customers on time, or sending timely reminders a couple days ahead of time can also help ensure a business can generate cash flow every month.

3. Hire the right people
Time is money, and hiring the wrong people can set you back quite a while after taking into account missed sales opportunities or strained customer relations. Make sure you hire people that are competent, have a proven work ethic, and the right attitude to work for you.

4. Get social
If you have a limited budget when it comes to spending on marketing or advertising, make the most of free social media pages to grow your brand and attract online prospects and customers.

Applying for a small business loan

Whether a business needs money for its initial start-up or to simply buy resources and equipment, there will always come a time when a business will require a loan to continue moving forward. Business owners can improve their chances of loan approval by showing the potential lender that they can support their business ideas and plans with valid financial information.

The below checklist is designed to give business owners an idea of what to include in their loan application:

– A short (but detailed) excerpt of what your business does, its history and ownership details.

– The owner’s personal financial information, such as credit history, tax returns and personal assets.

– A business’s financial information. This may include balance sheets, profit and loss statements and cash flow statements.

– A forecast of financial information. The forecast should reflect what the business owner expects from the loan (assuming that the loan is approved). To have this work in the owner’s favour, they should include best and worst case scenarios.

– A detailed description of why the business needs a loan. Owners must remain critical when they have to decide what type of loan they need. They should state the amount and the time it will take to pay back the loan. Including a business plan here can help to improve the chances of getting a loan approved.

Five ways to pay less FBT

Small businesses can achieve real dollar savings by efficiently managing and calculating the Fringe Benefits Tax on meals and entertainment. However, the challenge is often finding the best calculation. Many organisations struggle to identify which calculation method is best for them and, as a result, have to pay more FBT than necessary.

Here are five FBT strategies that may help small businesses get ahead:

1. Automate the expense management process
Automating the process allows a business to determine the lowest FBT liability automatically. It saves time, provides full visibility into expenses and enforces policies to optimise the expense management process.

2. Use clear, descriptive definitions for the expenses
Over-complicated definitions can confuse employees and impact on the quality of data (from a calculation and compliance perspective).

3. Train employees
Make sure employees understand the difference between the travelling and non-travelling employee status, as this impacts the FBT liability.

4. Use an employee master list
An employee master list simplifies the search for employee data and prevents the creation of multiple versions of the same attendees.

5. Review the RBT reporting annually
Don’t assume a specific calculation method will always equate to the lowest FBT liability. Make sure you are using the right method to avoid overpayments occurring.