4 Financial Ideas to Rejuvenate Your Business

Like elite athletes, successful entrepreneurs are always up for challenges. It doesn’t matter what economic situations they face, elite entrepreneurs are constantly finding ways to improve. Great managers achieve steady success regardless of occasional setbacks.

It’s a relentless commitment to excellence that enables them to meet and exceed their goals. That and realizing that numbers are critical management tools.

While attention to customer service and marketing are important in tough economic conditions, it’s financial actions that help entrepreneurs remain competitive.

Here are four actions to give you that edge.

Customer payments: Maintain a system that reveals aging of your accounts receivable. Ask your accountant to measure the average balance relative to sales. When you see this figure creeping up, your customers are waiting longer to pay.

Allowing customers to pay several days after a purchase is a privilege you offer, not a buyer’s right. You have the right to expect prompt payment, and the regular customers with whom you’ve established valued relationships will understand.

Of course you can afford to be lenient with customers who keep their word and are honest about temporary cash shortages. But you may want to change transaction terms – even requiring payment at the time of sale – for those customers who consistently let you down when it comes to payment.

Vendor priority: Just as you expect prompt payment from customers, your vendors expect the same. But not all vendors are equal. Remitting payroll taxes, for example, is critical and should be a top priority. Paying your rent should also be a priority, more so even than paying your banker, who is often willing to resolve issues and avoid collateral repossessions.

Keep an accounting of amounts owed to each vendor. If the numbers creep upward relative to sales, it is essential to prioritize vendors. Be proactive. Contact vendors and ask for extra time to remit payments. Always pay the highest-priority bills first and describe your circumstances honestly to every vendor.

Inventory balance: Holding too much inventory relative to sales is a recipe for disaster, and a successful business sells its inventory promptly. The basic procedure of measuring your inventory turnover must be conducted often. Your accountant can show you the equation, which uses numbers readily available from your bookkeeping system.

Don’t be afraid of discounting stale inventory. Too many businesses don’t hold enough cash during a downturn in sales and unloading old items from inventory helps you to weather a slump. In fact, the cash you raise through liquidating your stale inventory allows you to accumulate new inventory at low prices.

Experiment: Top-quality business owners always have an eye to the future. They improve upon what they do well and discard mistakes. They experiment and measure the results.

For example, you can enhance sales with free installations or by offering extended warranties. Create customer loyalty clubs or invest in training your sales team. Most important, you could schedule regular meetings with your accountants to review company bookkeeping and evaluate overall your financial condition.

Proper Data Storage Can Save Time and Money

Few business problems are more costly, and more unnerving, than losing information. Recovering just a few hours of data entry can take several days and hundreds of dollars. The solution is proper storage of digital information.

There can be intentional and unintentional reasons for losing data. Take, for example, deleting a file by accident. Or not saving it to start with. Fortunately, automatic save features are now built into most applications and self-service local backups represent an easy solution to recovering deleted files without requiring an IT wizard. Cloud-based backups are an inexpensive option to prevent against data loss from natural disasters. In addition, this offsite backup offers protection against data theft and infection of files by outside viruses. A basic offline backup is another solution, which retains at least one copy of data that intruders are unable to access or modify.

Hardware failures are inevitable. Downtime crashes are reduced or even eliminated by servers equipped with RAID (redundant array of inexpensive disks). Using a UPS (uninterruptible power supply) reduces data corruption from power failures and overloads. Large businesses have backup data centers and smaller companies can rely upon external hard drives. But, ultimately, there is only one sensible strategy for storing and protecting data and eliminating concerns over data loss. That is redundancy. Simply synchronizing data is not the same as creating redundant copies. The best solution is having multiple backups in different locations.

Secrets for Getting a Small-business Loan

Small-business owners run short of cash for many reasons. Understanding how the loan process works is half the battle to getting money from a bank.

Bank Limitations

When applying for a business loan you must remember that banks require assurance of repayment. Most importantly, a banker seldom possesses sole authority to approve a loan. The banker must sell the idea to the bank’s loan committee and he or she has no desire to look like a fool presenting a poorly conceived loan.

In addition, banks are heavily regulated institutions. Government authorities closely review loans to assure compliance with bank lending policies.

To avoid complications, many loan officers deploy strict suitability standards. They refuse to evaluate any circumstances beyond the basic measurements. You cannot obtain loan consideration from them if you don’t fit their narrow criteria.

The Right Banker

Consequently, your strategy for getting a business loan is to first interview loan officers before they start assessing your qualifications. This doesn’t entail asking specific questions about lending philosophy. It actually means taking stock of general demeanor. A banker with plenty of self-confidence is most apt to evaluate your loan proposal with a broad view using a personal sense about business matters.

Confident bankers listen to narratives about how a small business operates. They develop an appreciation for the system an entrepreneur uses to prevail in the market. These loan officers rely upon their experience in knowing if a loan applicant is sound. You can explain to such people how you expect to generate earnings for loan repayment.

Organized Information

A good first impression is imperative. You must substantiate your business plan. Demonstrate how your past strategies succeeded. Provide financial reports and understand their meaning. You need a balance sheet as well as a profit and loss statement. Use them to support your oral history of the business and description about current conditions. Determine some key financial ratios that define trends. Present a projection of cash flow from following your plan that reveals funds for repaying the loan. Describe why the loan proceeds will make more money for your company.

Explain the reason you are short of cash.

A banker will know if the cause is poor management. However, healthy businesses can have sound explanations for needing loans. Equipment breaks down at the wrong time. A sales slump sometimes occurs. Expansion opportunities arise when insufficient capital exists.

Remedies are available, but they require more than cash infusions. Reversals of misfortunes demand guidance by organized managers. Show that you have the skills and discipline required to effectively operate the business.

Every banker deals with countless people seeking loans who don’t even know where to find a financial statement.

Other applicants have financial statements but not a clue about what they mean.

A customer in possession of well-understood financial statements and a plan for loan repayment is so rare that it commands a banker’s full attention.

The Consequences of Having Negative Business Equity

Monitoring business equity is as important as knowing the amount of money in a company’s bank account. Adverse consequences arise if equity becomes negative.

Equity is all of the owner’s investment in the enterprise. Retained earnings are the component of equity comprising all profits that remain in the business. A new business has no retained earnings. Profit at the end of year one is retained earnings to start the second year. Subsequent accumulation of profits further adds to retained earnings.

Withdrawals of profit reduce equity. Business structure determines how an owner withdraws company profits for personal use. Proprietors withdraw money at will. Partners have the same privilege in proportion to their ownership percentages. S corporation shareholders receive distributions, and C corporation shareholders obtain dividends.

Contrary to popular perception, business owners can possibly withdraw more than accumulated profits. This creates negative retained earnings. When that happens, the business has more debt than assets. Selling or liquidating the operation will likely require owners to input capital for repaying liabilities.

The worst consequences of negative retained earnings occur with S corporations. Distributions to S corporation shareholders that create negative equity are taxed as capital gains – unless the shareholder is the source of loans to the business. In addition, a shareholder is not allowed a tax deduction for the loss of an S corporation when he or she has no equity or loan investment in the company.