Improve Your Business Cash Flow

Did you know that even if your income statement shows that your business is making a profit, your business can still not succeed? Just because you are profitable on paper, you still might not have a positive business cash flow. And, without cash, your business simply runs out of money and has to shut down. Cash flow problems are one of the biggest reasons small businesses fail.

What is Business Cash Flow?

The definition of business cash flow is pretty simple. It’s the movement of cash flowing in and out of your business. Cash comes in to your business when clients or customers pay for your products and services. Cash goes out when your business pays for expenses such as inventory and rent. When cash flow in is greater than cash flow out, you have a positive cash flow. When more cash is going out of the business than is coming in, the cash flow is negative.

There are some times when a business can expect their cash flow to be negative. It’s important to plan for those times by keeping more cash in reserves. If you are just starting up, you may have many one-time expenses to get your business off the ground—such as equipment and advertising—before you get any paying customers. Also, if you are a seasonal business and experience fluctuations in orders based on the time of year, it is important to manage your business cash flow wisely.

How to Manage Business Cash Flow

Keeping track of your business cash flow will help you see where any issues may be. A cash flow statement will compare accounts payable to accounts receivable. It will also help answer questions such as:

• How much is your company owed by clients?
• How many invoices are still overdue?
• How long does it take to get paid by clients after paying suppliers?

If more items are payable than receivable, you may have a potential cash flow problem in your future. The sooner you fix a cash flow issue, the better off your business will be. If you avoid the issue, you risk getting further and further behind, resulting in the possible loss of your business.

How can you make changes to move business cash flow back into the positive? Here are some ideas:

• Short-term financing can help bridge a short-term business cash flow gap
• Long-term loans help spread large asset costs over time
• Invoice factoring
• Sell assets no longer helping with profits, such as older equipment, to liquidate cash
• Reduce business expenses
• Find strategies to increase sales
• Implement procedures for receivables to come in faster, such as twice monthly invoicing, shorter payment terms, deposits on large orders, and more
• Wait to pay bills as long as possible without consequences of late fees and spoiled relationships

Financial advisors often recommend keeping 3-6 months of expenses in cash reserves for emergencies and unforeseeable situations. This advice carries over to business accounts, as well. Having cash in your back pocket for a rainy day may save your business in times of struggle.

Small business owners must learn and maintain smart cash flow management in order to succeed and stay afloat. By applying some simple cash management strategies, you can keep your business thriving. Both your business outlook—and your business cash flow—will be positive.

Factoring: A Business Cash Flow Solution

If business cash flow problems are creating concerns for your small business, invoice factoring may be a solution.  Put your trust in the best and call American Receivable to learn how our flexible factoring solutions help businesses like yours.

American Receivable, with offices in Dallas and Austin, is ranked No. 1 nationally among small-business factoring companies. Since 1979, we have provided small businesses with the financial resources and accounts receivable management strategies they need to grow, increase inventory, make payroll on time, and effectively compete in the marketplace. Simply put, we are your source for factoring and accounts receivable management.

Our clients are our priority. At American Receivable, we pride ourselves on our exceptional customer service and dedicated and tenured account managers. We can provide funding within as little as 24 hours in some cases. The success of our clients is the success of American Receivable. Call us for a FREE quote today at 1-800-297-6652, or complete the quick quote form below.

Managing Productivity and Morale during the Holidays

It is easy to get off track during the holidays. People are focused on the festivities, shopping and meals of the season and can lose motivation at work.  It is important to keep your business on track at the end of the year as well.  Keeping employees motivated and morale up will help guarantee continued success.

There are many ways to keep morale up.  You don’t have to break the bank.  Simple gestures will do the trick.

1. Decorate the office.  Encourage participation from everyone.  If you have a diverse office, into them to share different cultural traditions during the holidays.
2. Have a catered lunch brought in once day.  Let your employees know in advance and encourage everyone to share lunch and            social time together.
3. Have special festive treats available one or twice a week.  Ask employees to share b bringing treats. This is a good time to share    cultural or family traditions.
4. Do an office or company wide Giving Tree. There are many options such as a coat drive      food drive or toy drive.   Another option is to adopt a family and provide for them during the holiday season.
5. Have drawings once a week for gift cards in small denominations for coffee shops and inexpensive restaurants or cafes.

Small gestures will make your employees feel appreciated and people who feel appreciated most often will work harder. All of the above suggestions will make for a great holiday season at the office. You know your employees, so come up with other small gestures of your own.  Set a plan that fits your specific office.  

What You Need to Know About an Income Statement

Let’s face it, many business owners who are busy with the daily routines of running the company, struggle with taking the time to fully understand accounting principles and terminology. Yet, there are important concepts to comprehend if we are going to run a profitable and successful small business. In this article, we share a layperson’s explanation of an income statement.

The financial statements of a business provide a representation of the company’s current performance to owners and investors. The most important financial statement for the majority of companies is likely to be the income statement, since it reveals the ability of a business to generate a profit. This financial report is not only used by management within a company, but also by outside creditors and investors to evaluate performance, profitability and assessment of risk for a creditor or investor.

Income statements do not just report the income your company makes, i.e. the cash coming in. Rather, an income statement reports the revenues earned by your company during a specific period of time (month, year, etc.). Also, it shows the expenses incurred by your company during the same time period. The income statement is valued because of its indication of profitability, timely reporting and classification of revenues and expenses. You can use this report to track revenues and expenses and determine the operating performance of your business over a period of time.

Understand the Parts of an Income Statement

Simply, an income sheet will add up all of the sales/revenues and subtract all of the expenses. Hopefully, the total will be a positive number, or profit. A negative remainder would be a loss. But what goes into the sales and revenues? What goes into the expenses?

Income is the money your company receives (or will receive) for selling your product or service for the given time period. It does not include assets.

Expenses are the costs incurred in order to sell the products and services. This can be separated into Costs of Goods Sold and Overhead Costs. Costs of Goods sold are variable expenses, such as commissions and shipping charges. Overhead costs are fixed and include items such as rent and salaries. These two types of expenses are often separate line items on an income sheet, allowing one to determine margins.

Components of an Income Statement

• Cost of Goods Sold
• Gross Profit
• Operating Expenses
• Operating Income
• Other Income/Expenses
• Profits

Accrual Basis

The most accurate income sheets are based on accrual basis. This means that income and expenses are recorded for months they actually occur, not just when money changes hand. For example, if you sell 50 widgets for $500 to Buyer 1 on October 15, but Buyer 1 doesn’t pay the invoice until November, the $500 revenue would show on your October income statement. Additionally, if your employee sold the widgets and earns a $50 commission, but doesn’t receive that pay until November 8, the expense (Cost of Goods) will still go in October’s statement, as well.

When accounting is done on an accrual basis, revenues earned are tied to the related expenses incurred in achieving those revenues. This is called the matching principle. This helps when determining profitability on the income sheet for the given time period. Getting this more accurate view helps small business owners make more specific decisions to improve profitability, by seeing the direct correlation between revenues and expenses.

Cash Basis

A cash basis income statement only contains revenues for which cash has been received from customers, and expenses for which cash purchases have been made. In other words, under the cash basis of accounting revenues are reported on the income statement in the period in which the payment is received from customers. Expenses are reported on the income statement when expenses are paid out.

Cash basis accounting is simpler than accrual because it recognizes only two kinds of transactions: cash inflows and outflows. The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognized. The cash method is a more immediate recognition of revenue and expenses while the accrual method focuses on anticipated revenue and expenses.

Make Informed Financial Decisions for Your Business

Once you understand an income statement, you can get a true picture of your business’s overall health. Are your margins poor? Are your costs of goods sold too high in relation to the revenues they earn? Are your overhead costs also too high, or can you afford the nicer offices you’ve had your eye on? Can you afford more sales staff? Do you need to look for a supplier with lower costs? Looking at your company’s profits and losses accurately will help you make these decisions, and more.

American Receivable can help bridge gaps in your income statements. Our commitment to providing our clients with responsive customer service and the most competitive rates in the industry has made us the go-to source for factoring in Texas and throughout the nation. The success of our clients is the success of American Receivable.

With offices in Dallas and Austin, American Receivable is ranked No. 1 nationally among small-business factoring companies. Since 1979, we have provided small businesses with the financial resources and accounts receivable management strategies they need to grow, increase inventory, make payroll on time, and effectively compete in the marketplace. We can provide funding within as little as 24 hours in some cases. Call us for a FREE quote today at 1-800-297-6652, or complete the quick quote form below.

Thanksgiving Through the Years

The first Thanksgiving in Plymouth Colony which is now Massachusetts was in 1621.  The last Thursday in November was declared a national day of thanksgiving by Abraham Lincoln  200 years later.  In 1941 Congress made Thanksgiving an official national holiday. A day of “thanks” and “giving”.

Thanksgiving has traditionally been a day of family and friends getting together for a meal and fellowship.  A day to stop and reflect on all of the blessings we share.  In 1876, football was introduced as a tradition.  Yale and Princeton played the first American Football game on Thanksgiving day.  People were off from work and were able to go see football. It was not until 1934 that the first football game was broadcast.  The Detroit Lions played the Chicago Bears at University of Detroit Stadium and a new tradition, which later became a television broadcast.

Thanksgiving has changed over the years.  While many of the original traditions remain, new ones were born.  Black Friday became a big tradition for many families.  Getting up at early hours to go Christmas shopping for the best deals.  The idea came from retailers showing losses seeing a surge in sales on discounted merchandise on  Black Friday, often bringing their revenues back in the black.  Retailers started opening early on Black Friday and advertising big sales.  In the last decade, lit has become a Thanksgiving evening tradition with stores opening on Thanksgiving evening and staying open 24 hours. People have made their own traditions as well.  Many take vacations and skip the big meal and the shopping, although most still incorporate a game of football in the plans.

Thanksgiving is celebrated in many ways.  However you celebrate, remember to give “thanks” and “give” to those in need.

American Receivable is thankful for our customers and our relationships in the financial industry.  We wish everyone a safe and happy holiday.

In the words of the late Erma Bombeck:

“It takes 18 hours to prepare a Thanksgiving meal,

 It takes 12 minutes to eat it.  Half-times are 12 minutes.

 This is not a coincidence.” 

Business Partnerships: A Necessary Risk

Starting a business is an exciting venture.  Sole proprietorship allows you the freedom to Implement your own ideas, business procedures, and schedules as you wish.  The decisions you make will not impact anyone except you.

Working alone can be difficult when trying to jump-start a new business.  Most people need help in some areas, especially with the financial aspect. Some people may be better suited for a collaborative effort.  People have different strengths and weaknesses which is beneficial to the business. 

There is always a risk in a partnership.  You have heard the saying “nothing is forever”.  Many problems can arise when working with other people. Many people go into business with someone who initially seems to have the same mind-set and goals for the business. At some point during any partnership, egos, differences in opinion or direction may cause a rift in the partnership.  When the partnership dissolves, there are often claims of ownership and property that can cause disputes.  Partnership agreements can eliminate legal disputes that may arise from the split.  If one partner is going to keep the business, legal disputes can be expensive and result in the business being forced to close. Different skill sets, temperaments, and ideas can create diversity. However, the necessity for financial help, implementation of business procedures and creative ideas are worth the risk is you are protected.

Business partnerships are often necessary and have the potential to make the business a success.  However, a partnership agreement is unquestionably critical in making sure both parties are protected in the event the partnership dissolves.

The Cash Flow Struggle

Cash flow is essential to any growing business.  When cash flow slows down, it can cause the business to drop revenues or completely fail.  In order to keep from failing, business owners have to look at their business practices and figure out what is causing the cash deficit.  There are many possible reasons for the shortage of cash flow as well as simple ways to eliminate the problem.

New streams of revenue may be a possible answer. Can you diversify your business to include other services that would bring in regular cash flow?  Adding the right services to your current business can help fill in the cash flow gaps.

Don’t overestimate when forecasting cash flow.  Bee conservative and consider worst-case scenarios when forecasting for the future.  Planning ahead will help your business stay afloat and reduce risks in the event of an unexpected cash flow shortage.  Consider prior years when forecasting your upcoming year.   Late payments from customers or large unexpected business expenses can lead a business into a cash flow crisis.

Collecting from customers can be a constant struggle.  Look at your current collection practices and look for ways to make them more efficient and effective. Implementing software that can flag overdue accounts and send reminders to customers should be utilized.  Follow-up phone calls or emails may be required, however, the software will give you the assurance that reminders are being sent and your accounting division is aware of any problem accounts.

Evaluate the time management and resources of your employees.  Are they using time effectively?  Are your employees using resources too quickly that could be used more conservatively? Are they spending too much time in one area and too little time on something more crucial like collections or verifications?  Efficiency in your business will be a helpful tool for cash flow management. 

Business expenses and operating costs.  Know how much revenue is being spent on office supplies and other expenses.  Businesses often order supplies that are not really essential for daily operations that could be purchased on an as-needed basis. Look at your supplies and order only what is necessary.  A smart business owner will always be on top of revenue coming in and going out.

Cash flow is the most important asset for a business.  Make sure your business is utilizing your cash effectively for growth and longevity.

Building A Customer Focused Business

The Value of Business to Business Relationships

American Receivable Corporation considers it’s business relationships within the financial community to be one of its greatest assets. American Receivable’s partnerships within the banking community and with professional CPA’s spans over 39 years These relationships have been mutually beneficial to us,  the bankers and CPAs as well as our factoring clients.

No matter what type of business, it is important to have good financial advisors.  Commercial lenders help clients manage accounts within the bank and review projected capital requirements.   A well-respected CPA will help manage taxes, cash flow, and other financial challenges. 

These relationships give American Receivable the ability to match clients with the right financial professionals. Commercial lenders often send us clients that do not meet the federal banking criteria for business loans. When this happens, the lender will contact American Receivable Corporation.  We work with the client to find the best solution for their cash flow needs and their specific business.  In turn, we recommend they keep their accounts with the lender that sent them to us.  At the point they qualify for a traditional business loan and wish to go that route, they already have a lender familiar with their business and their challenges.  

CPA’s managing business accounts often call us when they see cash flow needs for their client.  We work closely with the CPA and the client to ensure the best solution for their specific needs. The CPA continues to handle accounting for the growing business and catch any cash related problems early. 

American Receivable is proud of our long term relationships in the industry. These relationships allow us to work together for our clients.  We consider our clients based on the credibility of their customers, not on their personal credit.  American Receivable is able to work around many of the criteria that are required in traditional business lending.

Our clients are always our first priority.  At American Receivable we pride ourselves on our exceptional customer service and dedicated and tenured account managers.  We can provide funding within as little as 24 hours in some cases.  The success of our clients is the success of American Receivable.

Leadership Tips for Small Business Owners

We’ve all had experience with different leaders in our workplaces and communities. Some people are calm and collected, and some are fiery and passionate. Some are more courageous and others cautious and methodical.

There are benefits and drawbacks to the various leadership styles, but no matter how outwardly different, successful business leaders have a few things in common.

Read More “Leadership and the Success of Your Small Business”

How to Keep Your Small Business from Failing

According to recent reports, the economy is booming, and it seems that now would be an excellent time to start a new business. The failure rate of new businesses is sobering, though. Bloomberg research shows that eight out of every ten businesses fail within a year and a half. The keys to success we will outline here seem simple, but keeping your eye on them from the beginning isn’t always easy.

Read More “How to Keep Your Small Business from Failing”