If you’re still mailing custom invoices by hand when billing time comes around, your invoicing system is long overdue for an overhaul.
With tons of software choices to help you organize, manage, and automate your invoicing, the real trick is to find the right payment solutions to fit the way your particular business runs.
Unlike the old days of throwing a stamp on your letters and handing them off to the postal worker in hopes they find their way to their correct destinations, today’s software tools give you the ability to track your purchases from the very first estimate until it’s completely paid. (more…)
In today’s turbulent business environment, businesses big and small are at risk for cash flow woes. We’ve discussed what it takes to keep a good balance of cash flow in the past, but for those who find their businesses pulling in drastically less earnings than the projected you’re probably searching for options to get your expenses balanced properly.
Stabilizing your business’s cash flow during a period of downturn or other unfortunate circumstances that affect your finances is something entrepreneurs and small business owners deal with every day, so don’t panic, there are plenty of options to choose from.
Let’s take a look at some options geared specifically to startups and small businesses in search of a plan to get back on track: (more…)
When prospective business owners finally launch their idea into reality, one of the biggest risks to those who struggle to gather initial investment funds or enter into high-risk financing arrangements is the danger of business woes negatively affecting personal assets. While there are countless resources available to assist business owners letting losses impinge on their personal savings, few give much advice on how personal circumstances can end up hurting your business.
While business-to-personal finance risks are certainly a primary concern that should factor into what sort of business you start, it’s also important to protect yourself from outside liability should disaster strike. Here are three things you can do to assure your business remains safe during times of personal duress: (more…)
Today’s entrepreneurs have no shortage of ideas when it comes to creating innovative products and services in today’s networked business world. The financial end of these ventures, however, can often fall by the wayside when the more “exciting” aspects of a startup take center stage. A dull regard for ones finances as they relate to a business’s sustainability can quickly derail them seemingly out of nowhere when diligent money monitoring isn’t established early on.
Compounding this issue is a sense of financial automation new business owners assume is possible with today’s advanced bookkeeping tools. While accounting software provides a far more convenient solution for keeping track of one’s records and forecasting short-term budgeting considerations into the future, no tool is able to give you total financial autopilot. Whether you’re completely new to small business finance or need to brush up on what you should monitor most, here are four areas you should keep close tabs on as you continue to grow:
Make every effort to keep your cash flow positive
For those who are operating on a fragile budget, cash needs to be a top concern. The “cash flow from operations” line on your statements is the key metric to monitor your cash flow in terms of your day-to-day operations. The implications of a negative cash flow are simple: you won’t be able to pay your bills and may risk running out of cash altogether if steps aren’t taken to rectify the imbalance.
Putting in the work to establish a sustainable positive cash flow brings with it the ability to devote more of your attention to the other dimensions of your business. You can begin to devote your time toward strategic business growth rather than worry about staying afloat week to week or month to month. It’s also important to understand the difference between profit and cash flow.
Being “profitable” doesn’t necessarily mean you’ll be able to sustain a positive flow of regular cash. This can become a reality when clients begin paying you through accounts receivable rather than immediate cash. Although you can account for the revenue, you may not actually be able to use it to pay bills or other expenses until sometime in the future.
Have a firm understanding on your net growth
Perhaps the biggest takeaway of this advice is to hold your net margins in the highest regard. Simply put, your net is the clearest indicator of the profit you’re making for each dollar of sales you’re closing. Looking deeper into the value of this metric, it provides a unique way to gauge your company’s ability to maintain profit regardless if your dollars of profit begin to decrease.
This is accomplished by a simply equation: your company’s net income divided by total sales. The result will give you a useful percentage of profit margins you can use to better understand your financial standing even when sales dip.
Make borrowing decisions carefully
No matter how confident you are in your product or service, borrowing too much capital when you launch your business is a huge risk. The fundamental problem is a disconnect between your business’s financial needs and borrowing payment agreements.
In essence, if your initial sales projections turn out to be less than you’d expected them to be, you’re stuck with the same monthly payments to those you’ve borrowed from. While smart borrowing can be a great way to push your company towards expansion, your business model needs to hold up accordingly.
When decisions are made to borrow too much too early, it doesn’t necessarily mean the end of your company, but it can put a heavy damper on your growth for months or years to come. With less revenue than you’d expected to see, more of your money will have to go to those you owe rather than towards new projects. Don’t find yourself a situation where your business is guided more by cash flow restrictions rather than your plans for growth.
If you’re looking for financial advice regarding a new startup endeavor, our outsourced accounting and CFO services experts can help you carve a successful future for you and your business idea.
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Knowing how far into the future you can accurately plan your finances can be a tricky task. Forecasting your expenses for the next month is usually much easier than trying to predict what will happen a year from now.
If you find yourself throwing your hands up in the air when it comes to budgeting your books for the year ahead, it’s important to follow through and avoid letting yourself get behind. Just like driving at night, your car has high beams for a reason––don’t let obstacles jump out of the dark at you when it’s too late to swerve out of the way.
The best way to cover all the bases with your budget is to create two separate annual plans. An operating budget focuses your finances around profitability. This, more than anything is a way to track your overall growth from year-to-year.
For small businesses and startups, a second budget based solely around cash flow can be extremely useful for more careful monitoring of both what’s coming in as well as what’s flowing out. As we’ve said before, a poor balance of cash flow can put an expiration date on your business unless steps are taken to reverse it in time.
Paving a path to profitability
Focusing specifically on the operating budget, this plan also accounts for more than just what’s coming in over a 12-month period. In more concise terms, the incoming side of the equations projects your gross sales as well as net sales. Further than that’s it will give you a good idea of your net profits and loses as you move a year ahead with your business.
As far as expenses are concerned, a complete budget should account for a list of one-time expenditures you can see coming down the road. These kinds of items can often slip through the cracks and end up unaccounted for. It’s best to cast a wide net rather than wonder why your numbers seem light at the end of the year. A possible scenario where this could happen might involve a move from one office to another. Items like new furniture, office supplies, and other seemingly smaller expenses can add up quickly over time.
This budget will also account for essential ongoing expenses––most common probably being rent. Other ongoing expenses you may want to take note of are: personnel expenses (payroll tax), utility bills, insurance plans, licensing and any third party services like accounting and legal teams.
Perhaps the biggest boon in taking the time to lay out a complete operating budget is the ability to experiment with business variables. For instance, say you’re able to cut your staffing over the next two months, or set a higher price for your product as it appreciates in value. These scenarios can point you towards more realistic profitability goals, giving you a practical sense of when to expect your business to earn the profits you think you can achieve.
Ensure your growth is secured with a cash flow budget
Although it’s often ignored among small business owners caught up in other aspects of their budding business, establishing a budget just to monitor and project cash flow is an essential piece of the financial puzzle. For small businesses especially, this budget can actually tell you more about where you’re going in the short term than a budget based around profitability can.
If you’re unfamiliar with cash flow as a concept, it’s an important metric to understand. You can call your cash flow positive if you have enough money in the bank to pay off your bills at any given time throughout the year. This is the big difference between having a positive cash flow and being profitable. While the operating budget may lead you to believe your finances are stable since you can call yourself profitable, you may be paying for things in advance and waiting on payments that are accounted for but not yet in your books.
The first step for small businesses and startups
Unlike established businesses with a history of financial data to start a budget with, startups need to start from zero. Instead of looking back within your business, gauge a starting point with your budget by researching your industry in depth and compare competitors in your market.
In terms of measuring your costs, try to record your expenses as accurately as possible, and take any widely known market changes into account. If your business will fluctuate seasonally, try to get data that you can put together to account for dramatic shifts in business accordingly.
Lastly, it’s important to keep current on your budget and not simply seal it away every year after you’ve worked out a plan. Check it at least once a month to gauge how well your financial forecasts match your actual income and expenses. A well-crafted budget is a great tool for catching unforeseen problems before they become damaging.
If you’re looking for a reliable accounting or CFO service willing to work through your budget with you, contact our start-up accounting and CFO services experts.
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