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Cash Flow

Spring-clean Your Business and Bear the Fruits of Increased Efficiencies

As the year draws to a close – the time may come when you should look at cleaning out those old files and do a recon.

Standard Bank

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Spring in South Africa comes at a time when the festive season is around the corner and consumers are beginning to think about holidays.

For the small business owner, who also happens to be the financial manager and fulfil a number of other jobs in his business, spring is the time to get down to basics and prepare the business for the busy time ahead.

It is easy when getting involved with the many things that have to be done in a business to lose focus, says Ethel Nyembe, Head of Small Enterprise at Standard Bank. However, it pays once in a while to stop, check on the business and plan your way forward.

“The process of spring-cleaning a business is something that should be done at least once a year. It is a time to examine all aspects of the business- including finances- and to get things right for the rest of the trading year.”

“The place to begin is by examining your shelves and store rooms and reviewing your stock. This activity will lead you on to naturally examine the financial aspects of your business.”

Related: There’s No Better Time than Now to Start Innovating

Ideally, at least five activities should form part of a business spring-clean, says Nyembe. These are:

1. Checking and reviewing stock on hand

Stock lying on a shelf or in a storeroom is money that is being non-productive. Assess what sells well and increase the shelf space allocated to these items.

Take stock that has been accumulating dust, reduce prices (but still keep a healthy profit margin built-in) and have a sale. There is no better time to have a sale then during a new season.

Use the money you make to buy stock that sells quicker. You can also plan ahead and keep the focus year-round, by creating a sales sheet which helps you identify quickly what is selling and what is not and replenish stock accordingly.

2. Streamlining your purchasing

Adopting a ‘just in time’ approach to ordering stock means that you get in stock just in time to sell it. You then don’t have vast amounts of stock piled up waiting to be sold.

This means that precious capital is preserved, cash flow is maximised and money can be retained for buying items that sell easily.

3. Examining your payment systems

You can accelerate the cash flow in your business by making sure that you have all the options required to help your customers pay.

It costs money to accept cash, drive to a bank and manually pay it in to an account. The more point of sale options available for payments at your business, the better your service and collection of payments.

Related: How to Put your Small Business in the Best Position to Get Credit from a Bank

4. Spring-clean your financials

Things to consider when spring-cleaning your cash flow and financial management are:

  • Checking your accounts. Where customers have accounts and have histories of being late payers, decide whether what they cost you in terms of delayed payment is worth it. Take steps to collect outstanding money and close accounts that haven’t been used for some time. Get bad payers off your books.
  • Change payment terms and offer good customers discounts for early settlement of invoices. In these tough financial times, people and businesses are all trying to save money. Discounts help them and help you by boosting your collections, increase the health of your balance sheet and keep cash flow positive.
  • Approach your suppliers for extended payment terms – for example: Ask for 60 days instead of 30 days. This can help stabilise your cash flow. If they insist on a 30-day cycle, ask for a discount for early payment.
  • Look at the cycles your business goes through. If you have quiet periods during the year, consider applying for an overdraft that you can use to smooth out the trading bumps. It means that you don’t have sleepless nights and you can meet your financial obligations.
  • Relook your operational costs. Examine everything from rentals, systems, phone, electricity and transport costs. Make cuts where you can, as these savings go straight to your bottom line.

5. Examine the costs of replacing and upgrading equipment and consider new finance models

Review your equipment needs and assess the service life you can still expect from these investments. You may find that some equipment is old and requires maintenance frequently or simply use too much power.

When equipment is too expensive to maintain and new and more efficient machines are needed, consider your options. You can:

  • Purchase new equipment or vehicles outright.
  • Buy through an instalment lease instead of having a major cash outflow from the business, this will allow you to regulate the time and costs of replacing new equipment.
  • Opt for a lease instead. Although this may be slightly more expensive on a monthly basis, there are major advantages. Most office and other equipment include a maintenance agreement, so all service costs are covered in the lease. Maintenance therefore takes place regularly and equipment remains reliable. The contract can include an option to upgrade to more sophisticated machinery at certain times during the lease. This reduces operational costs and ensures you always have state-of-the-art equipment in your business. At the end of a lease, equipment is returned to the lessor, so you have no concerns about disposing of old equipment.

The above five activities form the core of activities designed to sharpen the focus of a business, however it is worth spending time examining everything about your business.

Pausing to check what your competitors are doing, how they are marketing their businesses, their products and pricing structures can also reap major benefits.

“A good spring-clean also allows you to get reacquainted with your business – something essential to small business owners who get caught up in everyday tasks and are unable to spend enough effort on developing strategies and plotting the way forward for their companies,” explains Nyembe.

standard-bank-full-logo

Standard Bank SA is the largest operating entity of Standard Bank Group, Africa’s largest bank by assets. Standard Bank SA provides the full spectrum of financial services, with more than 720 branches and over 7 100 ATMs. Independent surveys of customer satisfaction consistently place Standard Bank at or near the top of their rankings. The personal and business banking unit offers banking and other financial services to individuals and small-to-medium enterprises. For further information, go to community.standardbank.co.za

Cash Flow

The Next 5 Steps To Take After You’ve Been Denied A Small Business Loan

First things first: Ask the lender exactly why you were denied. Then, try, try again.

Entrepreneur

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Let’s say you put together a business plan. You did the math to figure out exactly what you needed. You researched your small business loan options, diligently completed the paperwork and even did your little “good luck” dance as you clicked the “submit” button on your application. But then, your worst fears came true: You were denied that small business loan.

Let’s face it: There’s almost nothing quite as discouraging for an entrepreneur as seeing your business dreams halted by the decision of a single lender. You might feel rejected, have no idea what to do next and even start to question whether your grand business plans were ever meant to come true in the first place. But here’s the good news:

Of the many entrepreneurs who are denied a small business loan after their first application, most do go on successfully obtain financing with later applications. The key is to figure out why your application was denied, take steps to improve your credit and financial standing and choose the right loan product for your business – before trying again.

Don’t let a single denial hold you back from pursuing your small business goals! Here are the five steps you can take right now to ensure that your next business loan application results in a resounding yes.

Related: Is Venture Capital Right For You?

1. Request an explanation from the lender

Once a loan officer has given your application that red stamp of denial, you’re not likely to change his or her mind. Most lenders, however, will be willing to provide a letter of explanation detailing the reasons that your business loan application did not meet their requirements.

Understanding why you’ve been denied a small business loan will be critical as you seek to successfully re-apply in the future – and the answer might not be as obvious as you may think. A letter of explanation from your lender will allow you to address those specific concerns before seeking funding again in the future.

2. Check your business and personal credit reports

If you’ve ever bought a house or a car, or even applied for an apartment lease, you’re likely very familiar with your personal credit score and the impact it can have on your access to financing. But did you know that as a small business owner, that personal credit score also weighs heavily on your access to a small business loan?

That’s why, upon being denied a small business loan, one of your first steps should be to check your personal credit report and score for any discrepancies or forgotten financial woes that may have contributed to the denial.

Be sure to check your credit report with all three major reporting agencies – ExperianEquifax and TransUnion – as different bureaus may receive and report different information about your credit history. Should you find any errors on your credit report, reach out to the agency, in writing, to have the information corrected immediately. You don’t want an error to impact your ability to get a loan.

Along with your personal credit, your business also has its own credit report and score, which factors into lenders’ criteria. For most small businesses, however, the challenge of business-credit reporting most often stems from a lack of credit – particularly if your business is relatively new or you’ve never sought a loan before.

Work to build up your business credit by asking vendors, creditors or even the landlord of your retail property or office space to report your payment history to major business credit reporting services, including Experian, Dun & Bradstreet and Equifax.

3. Take steps to improve your business’s financial standing

business-financial-managementWhile your business and personal credit scores will typically be the most influential factors in a lender’s decision process, the internal financials of your business – particularly the strength of your annual revenue, cash flow and business savings – will also be considered.

Taking an objective look at these factors from your lender’s point of view may help you to determine what steps you can take to either improve your financial standing or choose a loan product that will be a better fit.

The best way to do this? Take a look at what’s called your debt service coverage ratioor DSCR, for shortThis simple formula is the tool that lenders use to determine whether your business has the necessary cash flow to make your loan payments consistently and on time.

Related: 6 Money Management Tips For First-Time Entrepreneurs

Don’t know what a DSCR is? Here’s the basic formula you’ll need to calculate your debt-service coverage ratio, including your anticipated loan as part of your calculations:

Annual net operating income + depreciation and other non-cash charges

Divided by interest + current maturities of long-term debt

A debt service of less than 1 indicates that your business’s debt will exceed available cash flow, meaning your loan will surely be denied. Most lenders look for a higher DSCR – at least 1.25 – with a ratio of 1.5 or even higher being ideal.

Even if you’ve been denied a small business loan because of a low DSCR, you may not be able to quickly increase revenue or reduce expenses in order to re-apply.

If this is the case, consider seeking a lower amount of funding – at least at the start – in order to increase your chance of approval until you can build up your business’s financial standing.

4. Consider alternative loan products

We can’t say this enough: A denial from one lender on one loan application is not  a “no” for all time. Variations between lenders’ standards, the requirements different loan products have and the amount and terms of your financing can often mean that even without making major changes to your credit or your business finances, you may still be able to obtain a small business loan relatively quickly if you explore your options.

5. Apply carefully the second time

Beyond the challenges of bad credit or your choice of the wrong business-loan product, there are simple mistakes or oversights on the business loan application that could be the reason you were denied.

Did you have all of the right documents? Did you triple-check your identifying information and every other aspect of the application form for accuracy? Did your balance sheet and profit and loss statements match the business bank statements and tax documents that you provided?

This is the time to get a second set of eyes on everything that you submit so that you don’t risk a second round of frustration.

Being denied a small business loan is a reality that many business owners face, particularly after their first application – but it is by no means the end of your business financing journey.

Allow yourself to overcome your frustration; then follow these steps to dig right back in, solve what problems you can and find the funding your business needs.

This article was originally posted here on Entrepreneur.com.

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Cash Flow

Dealing With Debt As An Entrepreneur

Debt is all too common for business owners, but these experts can help you see the difference between good and bad debt and teach you how to keep yourself out of it.

Mark J Kohler

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The following excerpt is from Mark J. Kohler and Randall A. Luebke’s book The Business Owner’s Guide to Financial Freedom

As an entrepreneur, it’s important to know the difference between good debt and bad debt. Good debt comes in the form of loans, a mortgage or lines of credit that can be used to the company’s benefit. I call this productive debt.

Bad debt, for our purposes, is debt you can’t leverage when growing your business. I refer to this as reductive debt. It’s money that isn’t working for you in any productive way. Typically, it’s used to buy things you can’t really afford; when that happens, it will never produce a good outcome.

I believe there are three primary reasons entrepreneurs get into bad debt:

1. The ups and downs of cash flow

When the cash is rolling in, there isn’t anything more exhilarating. However, business owners often underestimate the dramatic ups and downs and don’t foresee the months of terrible cash flow. We turn to credit cards to smooth out the ups and downs of cash flows so we can provide some type of economic balance in our personal life. We also presume we can easily pay off the credit card next month, but we don’t. Thus, the crisis begins.

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

2. Putting too much pressure on our business

Many times, an entrepreneur will start trying to live on the income from their business before their business is able to sustain them. They quit their day jobs and work hard to build the businesses, but they don’t realise they’re just not ready to pay the monthly salary they need to live on. The business needs reinvestment and time to mature. It needs reserves and time to create consistent cash flow. Maintain a second job or another income in your family relationships to give the business some breathing room. Before you know it, the business will be able to cut you the monthly check you need to live on.

3. Being overconfident

Sometimes entrepreneurs can be using productive debt and believe they’re being wise and cautious. However, in reality, they’re over-extended. Typically, it goes like this: The entrepreneur has a few great years of earnings and decides to expand and increase debt to grow as quickly as pos­sible, but they also change their lifestyle to their new income level. Now comes the downturn in the economy, a change in their industry or the loss of a few large customers. With the resulting major drop in profit, things get pretty rough financially, the situation snowballs out of control and the entrepreneur is at risk of losing their company.

Getting out of bad or reductive debt

It’s absolutely critical to your long-term success to expunge all reductive or bad debt out of your life as quickly as possible. Implementing a debt snowball is critical. Youve probably heard about this type of strategy of spreadsheet or analysis that can fast-track you to getting out of debt quicker than you ever imagined.

The procedure behind the debt snowball is simple.

  1. Create a simple plan.
  2. Stick with it.
  3. Celebrate your success.

First determine how much of your monthly income can be consistently committed to eliminating reductive debt. You need to commit as much as possible. Seriously, the amount of money you’re going to commit to eliminating this debt has to stretch you.

Next, make a list of all your reductive debts in order, beginning with the largest debt at the top of the list and ending with the smallest debt at the bottom. Be sure to include the minimum payment next to each debt on your list.

Now, you’re ready to implement your plan! Simply take the amount of money you committed to your debt plan each month and add that extra cash to the payment of the smallest debt. Continue to make the minimum required payments to all your remaining payments. Soon, your smallest debt will be fully repaid. Now, the snowball increases in size as all the money you were sending to that small debt is now applied to the next larger debt along with its normal regularly required payment. You continue making these increased payments to that debt until it’s eliminated as well. Then you repeat this process over and over until all your debts are gone.

Staying out of debt

Obviously, the best way to get out of bad debt is to avoid getting into such debt in the first place.

If you want to get out of debt and stay out of debt, it necessitates planning in advance. Here are some core business practices that will help you stay out of debt as you grow and expand:

  • Constantly minimising expenses. It’s OK to be frugal. Make sure to read The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley Ph.D. and William D. Danko Ph.D. (Taylor Trade Publishing, 2010..
  • Hiring employees only when you can afford to do so and expanding your business when the sales come in the door — not in advance, hoping for the growth.
  • Avoiding wasteful spending, and always consider the opportunity costs when making financial decisions.
  • Not overextending yourself even with productive debt. Be cau­tious and try to grow on the profits of the business as much as possible.
  • Having ample cash reserves to deal with emergencies and potential downturns in your business.

As an entrepreneur, when you find yourself in a situation where your debt is working against you and no longer working for you, then you need to make that debt disappear quickly. In my experience, the entrepreneurs who make it out of these situations will take quick action to cut their expenses and focus all resources on paying down the debt. Staying out of bad debt should not have to be reactionary; it should be part of your operating plan.

This article was originally posted here on Entrepreneur.com.

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Cash Flow

18 Ways I’ve Earned Rent Money When I Was Broke

Nothing motivates your hustle more than the prospect of an eviction notice.

John Rampton

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It’s an interesting world out there. In the past five years I’ve gone from being worth millions to being broke to being worth a millions again. There’s been more than one month where I didn’t have enough money to pay rent. There are times you need money, and need it quick.

With a more connected world, there are more opportunities to make money doing micro jobs and taking advantage of constantly evolving opportunities. Plus, globalisation has opened the door to add value for people well outside of your immediate proximity.

Here are 18 quick ways I’ve made money to pay rent when money is tight:

1. Teach a skill that you’ve mastered to others

If you are a talented musician, athlete or you have other desired skills, you could get paid to teach others. You could either become a freelance teacher or look for a service that helps match you with clients. This is an opportunity to make some serious money, improve your teaching ability and help others. Do not underestimate all of the time you spent as a kid playing the piano or learning to do backflips.

I’ve been able to scrounge up $100 teaching math to neighbourhood kids. This could turn into a longer gig as well.

Related: Which Side Hustle Should You Try? (Infographic)

2. Drive for Uber and/or Lyft

driving-uberThere are a few prerequisites you have to meet to become a driver. Assuming you are 21+, have been driving for three years, have a clean record and a nice enough car, though, you can make serious money driving for Uber or Lyft. You can be a driver for both at the same time, and can drive at whatever hours you want.

It took me about a week to be all setup to drive. So it’s not an overnight money situation, but it’s a quick way to make some money for bills. Most of the time money is deposited very quickly, often the same day.

3. Put a room in your house on Airbnb

There are inconveniences that come with being an Airbnb host, but it is quite easy to do so. As long as you have a room to spare in your house, you can rent it out for extra money. Plus, it could give you an opportunity to meet and connect with interesting people.

It took about three weeks for me to get set-up, actually host guests and see money in my bank account. It can happen faster but that’s about the timeframe it took me.

4. Build a social media brand

Social media is quickly becoming the world’s most powerful platform for generating revenue and reaching an audience. While the ecosystem is becoming more and more competitive, there are a number of tools you can leverage to stand out.

I’ve personally used this Instagram automation service to help me accelerate my growth quickly and gain new followers. It is important to invest in generating high quality content such that you develop loyalty among your fans before you begin to monetise.

I now can earn a few hundred bucks quickly by pushing brands out online.

Pro tip: Make sure to always disclose with #ad in the message.

Related: Are You Ready For A Side Hustle? Here’s How To Know

5. Go through your old things and sell them

You likely have books, clothes and other novelty items lying around that you no longer use. Spending a few days to go through those things and list them on Amazon, eBay or other sites to make some extra cash.

6. Pickup jobs on Fiverr

fiverr-logoThere are countless tasks on Fiverr that you can pick up. None by itself is a large amount of money but doing many tasks, though, can add up to a nice chunk of cash.

Money comes a few days after the task is completed. Most are cheaper tasks with demanding customers but can really start to add up. One month I paid all my bills from just working on Fiverr at $5 per gig that I did.

7. Dog walker/sitter

You can do this on a neighbourhood level or use a service to find clients. Walking or sitting for dogs tends is minimal effort for extra cash. Plus, if you like animals, what is better than getting paid to spend time with them?

I recommend starting small, say $1-2 per hour and working your way up once you have stable clients. It’s not much, but it can start to add up over time plus give you enough money to make bills.

8. Take advantage of credit card deals

There are countless credit card deals that are always popping up. Managing multiple cards is not the most fun, but it can yield you significant benefits. Be on the lookout for these deals. Some require that you spend a certain amount on the card within the first few months, and others have yearly fees. If the money that you are getting is greater than your costs, though, they can be a great use of time. Plus, if you are spending a certain amount of money anyway, you might as well do so on a card that will give you the maximum benefits in return.

Related: 3 Ways To Set Your Side Hustle Up For Success

9. Go thrift shopping and resell the best items

People turn in some awesome items to thrift stores. Going through the stores to find good deals is both fun and rewarding. You will likely find some items you can resell for a nice profit, and you might even find some cheap things to keep.

10. Proofread

proofreadingYou can get paid to proofread articles, books, and journals today. You have to be meticulous and able to stare at a screen for a while, but it is nice and relaxing money in return. Sites like Freelancer can help you find clients to do the proofreading for.

11. Do surveys and studies

Services like Mechanical Turk will pay you to take surveys, and there are always listings to get paid for participating in studies. The work can be a bit monotonous, but it is typically a mindless way to make money.

12. Keep your email receipts

You can make money today simply by not deleting receipts that come via email. Earny automatically scans your email for old receipts and matches what you paid to current prices. When there is something being sold for less money, now, they will help you get the difference back.

13. Take advantage of your data

There are services that will give you money just for offering access to your data. For example, Nielsen gives money away just by letting them install a software on your computer that tracks your habits. It might feel scary to give others access to this data, but in many cases, it will have zero impact on you.

Related: 50 Jobs, Gigs And Side Hustles You Can Do From Home

14. Make a bet to do something that will improve your life

If you have a goal you are trying to accomplish, make a bet with someone that you can do it.

This could be a great way to lose weight or pick up a new talent. It will incentivise you to actually do so, and you will be able to make some money for your efforts. Keep track of this in your calendar app.

15. Be a mystery shopper

You can get paid to pose as a regular customer for services like pizza delivery. Mystery shoppers are how companies test their customer service, and, in return, you can will get paid. You have to find the right deals, but doing so offers another effortless way to make money.

16. Become a search engine evaluator

You can make $12/hour evaluating search engine accuracy. Despite how good we think Google is, they still make mistakes and are willing to pay people to find them.

17. Sell your trash or recycling

empty-cans-recyclingThere are countless companies that will pay for your empty cans and sometimes even your trash. You are going to be creating the waste anyways, so why not take advantage of it?

18. Approach companies for consulting services

If you have a skill that you think you can help businesses with, then approach them about it. Many companies, even successful ones, struggle in a variety of different areas. If you know what you are doing and can demonstrate that, you could make some serious money helping a company out. This could especially be the case for companies that do not have enough money to hire more people full time but have enough to pay a one-time fee for a project or service. Hot topics today include SEO, digital marketing, and design.

Ready to take your making money to the next level? Here is a quick self employed guide to help you get started.

This article was originally posted here on Entrepreneur.com.

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