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Cash Flow

4 Scenarios When It Makes Good Sense To Take On Business Debt

Debt is often necessary to grow.

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You need to invest money into your business to make it grow. You need money to expand your workspace, buy more materials or equipment and to market your business.

Without an infusion of money, your business will remain stagnate. You might be able to grow a little bit, but you’ll never get big results.

If your business doesn’t bring in a large revenue that can be funneled back into the business, you’ll likely need some type of loan. The loan will give you a financial boost, and you can pay off the loan with increased revenue from business growth.

You shouldn’t automatically think of debt as a bad thing. Debt is often necessary to grow. But, there are good times and bad times to take on debt.

Here are four times taking on debt is beneficial to business growth.

1. You want to provide more products

If you want to offer new products or carry more inventory of current products, you need money to buy them. Getting a small business loan can give you enough money to provide more products.

When you carry more inventory, you need space to store and display it. You might use a storage unit, buy a second location, move to a larger location or maybe even add on. Small business debt can help you purchase more space.

Related: Entrepreneurial Balancing Acts with Debt

2. You want to increase your marketing efforts

radio-adsYou will only get more customers by getting the word out about your business. That’s why you need small business marketing.

Marketing doesn’t have to be expensive. You might create something as simple as flyers or do basic social media marketing. But, to reach more people, you might need more elaborate marketing tactics. You can invest in magazine ads, radio ads, billboards, pay-per-click ads and more. To achieve marketing success, you might need to consider taking out a small business loan. The extra cash will let you market your business well. You can pay off the loan with the increased revenue from the influx of new customers.

3. You want to build your credit score

You need good credit to get a loan. Plus, good credit can get you better payment terms with your vendors. But to get good credit, you need experience with taking on and paying off debt.

Taking out small loans can improve your business credit score. Small loans show that you are responsible and capable of handling debt. And when you make payments on time, your credit score increases.

Once you build up your credit and prove to lenders that you can handle debt, they will be more willing to give you larger loans. And, your score and timeliness might result in better loan terms, such as lower interest rates.

Related: Every Tough Choice Has Management Debt – Are You Accounting For Yours?

4. You want to hire employees

At some point, you might spend so much time on your business that it consumes your life. You might miss out on time with your family and friends. Or, you might have so much business stuff to do that you can’t get everything done.

Hiring an employee can help you grow your business. You can get more done and produce better quality work. You can hire employees who have special skills that will benefit your business.

Spending money on an employee is worth it if having that employee can help you earn more money. If this is the case, you might take out a loan to help prepare for the employee, cover recruiting fees, and pay for wages until your business begins earning more. When figuring out how big of a loan to take out, make sure you consider the true cost of hiring an employee.

This article was originally posted here on Entrepreneur.com.

Mike Kappel is a serial entrepreneur, and the founder and CEO of Patriot Software Company, and its subsidiaries. Patriot Software, LLC is a developer of online payroll and accounting software for U.S. small-business owners.

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Cash Flow

7 Things Every Entrepreneur Should Know About Managing Cash In The Business

Every entrepreneur needs to know how to prepare for cash, manage it effectively and mitigate fraud.

Chris Ogden

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Cash is complicated. It can’t be tracked properly, it opens up avenues for fraud, it gets stolen, and it is difficult to manage. It’s also an unfortunate reality that, in South Africa, cash payments and transactions are both inevitable and essential. So how can the entrepreneur overcome the challenges of handling cash? Here are seven ways…

1. Digitise

There are many ways to manage payments in the market today. You can Snapscan, you can Zapper, you can EFT and you can use an app to send money from a wallet to a mobile number. The problem is that none of these options recognise the fact that cash is still the leading method of payment in most markets. So, to really accommodate cash, the entrepreneur needs to look to digital solutions.

You can still physically collect cash, but digitise the transactional information so that you can easily identify the transaction and reconcile the cash collector.

Related: 5 Cash Management Tactics Small Businesses Use To Become Bigger Businesses

2. Protect the consumer

Ensuring that every cash transaction is tracked digitally means that you are protecting the consumer if the cash or transaction are lost. There is always the question – how can you service your customers post-payment without proof on your side? Ensure that your cash transactions are audited and accounted for to ensure you can recon accurately.

3. Don’t be a target

High collection points – those points where a lot of cash is collected and held – tend to become targets. Try to avoid putting your business in line of sight by using tools that can either limit the use of high collection points or that can alert the relevant security authorities if a theft occurs. Again, it comes down to digital tools to monitor, track and alert the right people at the right time.

4. Teach your customers

It’s one thing to invest into a bevy of tools and services to protect your transactions and consumers, another to let consumers make any number of silly mistakes. Teach your customers about fraud, potential risks, things to look out for and trust. They shouldn’t hand over their cash without the collector using the right tools or app and should be wary of any transaction that doesn’t have these protections built in.

Related: Improve Your Cash Flow: Manage Your VAT

5. Test and adapt

Invariably, those who want to commit fraud are equally committed to doing so. They will find loopholes and gaps that allow them to take advantage of you and your customers. Your best bet is to constantly test and adapt your systems, to build metrics in-house that measure inconsistencies and report back on any issues.

People are very creative and will find a way of helping themselves to cash that isn’t theirs.

6. Negotiate

Cash is expensive to manage so find ways of negotiating better deals with banks so you get the best fees. Cash-in-transit is expensive, but often necessary when it comes to large cash deposits.

7. Invest in a payment solution

Digital payment solutions aren’t always possible, but try to employ one that is easy to use and that can be gradually introduced to your customers. Adoption may be slow – it can take years to achieve low cash/high digital payments – but it will benefit you and your business in the long term.

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Cash Flow

5 Cash Management Tactics Small Businesses Use To Become Bigger Businesses

Reaching your highest potential as a business owner depends on maintaining positive cash flow.

Lisa Stevens

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You may have heard the phrase “Cash flow is the blood that keeps a business alive.” This couldn’t be truer, as consistent positive cash flow can help a business owner pay expenses, invest in new opportunities or grow a business.

Fortunately, as small-business-owner optimism remains high, most owners expect a healthy cash flow this year. The January 2018 Wells Fargo/Gallup Small Business Index found 77 percent of small-business owners rated their company’s cash flow as very good or somewhat good over the past 12 months, up from 73 percent in November 2017.

To help with managing cash flow, here are five tips you should consider:

1. Spread out your payments

Paying all your business bills at the same time rather than spreading them out can drain your disposable income and leave you at risk of not being able to pay your creditors and suppliers if an unexpected expense occurs.

Instead, try paying your bills closer to the due dates and negotiate with your vendors to see if you can extend your payables to 60 or 90 days.

Also, be sure to pay your most important bills, such as rent and payroll, before paying less important bills.

Related: 8 Ways to Avoid Cash Flow Surprises That Could Kill Your Business

Check with your vendor to see if you can receive discounts for paying any bills early. Remember to pay all your bills before the due date to maintain a good credit standing.

2. Collect payments quickly

Another way to improve cash flow is to incentivise customers to pay early by offering discounts.

Other techniques for collecting payments quickly include requiring deposits from your customers when taking orders and offering online payment options.

Thanks to advancements in technology, there are multiple ways for your customers to complete quick and efficient transactions with your business. One example is electronic billing, which allows for you to customize invoices and set up automatic payment reminders for customers.

credit-policy3. Establish a strict credit policy

It’s important to be wise about extending credit as a business. A non-paying customer can be a hefty expense to a small-business owner.

Establish a written set of standards for determining who is eligible for credit, and enforce those standards rigidly.

Also, be sure to require a credit check for all new customers before extending credit and monitor your accounts to identify late payers early so you can offer them a variety of payment options. These options might include a credit card charge or a payment plan.

4. Align your payroll cycle with your revenue stream

Some businesses, such as restaurants and retailers, generate daily revenue and can more easily cover the expense needed for weekly payroll.

Related: 5 Marketing Missteps That Make Cash Flow And Business Growth Stumble

For others, such as manufacturers, this could be a challenge, and you may benefit from paying employees less frequently, provided applicable wage laws allow you to do so. Refer to your state Department of Labor for pay frequency information.

5. Plan ahead for cash shortages

Expect the unexpected. Typically cash flow will vary, and unexpected expenses will occur even for established businesses.

Keeping a rainy day fund with three to six months of basic operating expenses in a reserve can prepare you for slow periods and emergencies.

Another option is to use a business credit card or business line of credit to pay for everyday expenses and help bridge gaps in cash flow.  Be sure to monitor your expenses with online banking and monthly statements.

Related: How Amazon Is Keeping It Lean

One important tool for planning ahead is a cash flow forecast, usually a one-year prediction of how cash will move in and out of the business. This helps business owners evaluate how profitable future sales will be, and provides an overview of what needs to be done to reach your goals.

In its simplest form, a cash flow forecast should show where cash balances will be at certain points in the future so you can anticipate and prevent cash shortages. To get started, organize your payables and receivables on a spreadsheet to see where money is coming and going.

Ultimately, reaching your highest potential as a business owner and being able to serve your customers effectively depends on maintaining positive cash flow. Following the tips above may help keep your business financially strong and position your company for success.

This article was originally posted here on Entrepreneur.com.

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Cash Flow

Why Cash Flow Is King But Margin is King Kong

Why you should shift your attention from cash flow to creating — and maintaining — strong margins for long-term growth and success.

Allon Raiz

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Conventional business wisdom states that turnover is vanity, profit is sanity, and cash flow is reality. And while this is true (very true), the focus on cash flow can become a distraction to what, in my opinion, is a more important focus. I see cashflow issues as symptomatic of other, hidden elements of running a business properly. The most important lever of all is the creation of margin (gross profits) in your business.

Here are five pointers to consider.

1. Chasing cash flow can be a distraction

The underlying driver for creating margin is creating defendable, distinguishable value for a client. When you create defendable, distinguishable value, it translates into the ability to charge more for your products and services since, by definition, there are lower competitive forces at play along with a higher perceived value.

Higher margins translate into higher net profits and this, over time, goes a long way towards reducing the effects of bad cash flow management.

Related: Strategies To Help You Stay Out Of The Red With Cash Flow

2. Create cash flow systems

When analysing the thousands of businesses to which I have been exposed over the last 18 years, I have seen that the majority of those experiencing cash flow problems have weak to non-existent cash flow systems. A few important systems and approaches can make all the difference in managing your cash flow better, and will give you more time to focus on creating defendable, distinguishable value.

These systems include: Budgets (that are used); creditors’ policies (that are implemented); a tough creditors’ clerk (who has no problem hunting down cash); and nurturing strong relationships with clients (in particular, with their accounts departments).

3. Margin increases resilience

Not only does margin create a cushion of cash that can be used to smooth over delinquent payers, but it also allows for a mindset of freedom to provide additional cost-bearing value-add to clients in emergency situations that require it, without any anxiety as to the overall profitability of the deal. This almost always leads to improved client relationships.

Related: Cash Flow Tips For Small Businesses To Survive Rocky Times

4. Margin increases the depth of core competencies

Some of the profitability generated by increased margin should, in my opinion, be channelled into deepening the core competencies of the business.

Deeper core competencies reinforce the company’s defendable, distinguishable value-add which creates more cash — a virtuous cycle. This cycle needs to be jealously maintained and guarded.

5. Margin keeps the client at the centre of attention

When you focus exclusively on cash flow, you are — to all intents and purposes — focusing on yourself. Your energy is concentrated on insuring that you have sufficient funds to maintain the operations of your business. When your priority is margin, your client becomes the centre of your business existence.

Your focus moves to their needs and solving their problems. This ensures longer-term, more profitable and stronger relationships with your clients. The result — given that proper cash flow systems are in place — is a business that does not experience cash flow issues.

The problem with conventional pieces of business wisdom is that they sound plausible and contain just enough truth for you to make them guidelines in your business. Perhaps a deeper analysis of their true wisdom, and whether or not they are masking a cause or effect, will result in you adopting practices that are more valuable to your business in the long run.

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