Business Advice for Arizona

Cash flow is the life blood of every business. Cash flow is about timing — the timing of money coming in vs money going out. If you can’t control that timing, it will affect almost every aspect of your business.  Proper management of cash flow means that businesses will have the working capital they need to grow and to take advantage of the opportunities that may arise.

Not keeping a close eye on cash flow can cause ripple effects that could lead to business failure.  Very real problems can arise when cash going out overwhelms cash that is coming in (you may have presented invoices to your customers, but that doesn’t pay the bills).  

Here are some of the things that can happen:

Your expenses go up when you can’t pay bills on time, because you are assessed late fees.

Planning is hindered — Plans you may have for a product launch, the addition of business equipment, advertising and promotion or for anything else that may promote growth can be derailed.

Problems in your workforce — Cash flow issues can cause panic among employees. You don’t want them to worry about getting paid.

Customer turnover — What if you have trouble paying suppliers and they begin to slow the pace of delivery of goods and services to you, which, in turn, causes difficulty in getting goods and services to customers? If lead times on product delivery get longer on a sustained basis, loyal customers won’t stay loyal that long.

So what can you do to streamline cash flow, both before problems occur and once they do? There are a number of tactics you can use.

• Track your cash flow — This is the first and foremost step to take. When you make a sale, if it is to a business customer, you may not receive cash for 30 days or more. Most businesses track booking and revenue, but you really should be tracking the cash. Invoice your customer as soon as the goods or services are delivered. Find out the answers to questions like these:  What triggers customer payments? What are the processing times for credit cards, debit cards, checks, etc? Work with your banker to get answers to these questions. He may have suggestions to speed up the processing. If you work with a bookkeeper or bookkeeping service, an accountant, or a software package, be sure you are tracking when receivables are paid and turned into cash.

• Offer good terms, get good terms — If you offer a small percentage discount or payment within 30 days, you’ll find that you’ll likely have cash in hand more quickly. However, be aware that you have essentially repriced your product into two components: actual product price and financing price. On the other hand, if you need to stretch payments, ask your suppliers for their absolute best terms– you may be surprised at the flexibility available to you. If you suppliers offer you discounts for paying within 10 days, be sure to compute the cost of not taking the discount.

• Offer customers multiple ways to make payments — Accepting more than just cash and checks — credit cards, debit cards, PayPalor services available through QuickBooks, for example, makes you more attractive to customers. Depending on the type of business, consider setting up your customer accounts so that they can access them on line and allow them to pay using a credit card or PayPal. These other forms of payment may speed up cash flow and they provide records that can aid bookkeeping.

• Make customer terms crystal clear — For customers that don’t pay at point of sale, invoice quickly and follow up. Putting a specific due date, such as July 25, rather than “30 days net” is the single thing that prompts people to pay. Prominently display your terms and conditions on all invoices.

If you do run into cash flow problems, the one thing you must do is communicate. Talk with your suppliers. Don’t avoid them.

Most important, knowledge is power. Work with your bookkeeper or accountant to develop a cash flow forcast if you don’t have one. If you are a rapidly growing business, you will have a cash shortfall. If you have predicted a cash shortfall, you can make funding arrangements. Line up funding before it becomes a crisis so that you will be able to take advantage of the business opportunity. If your bank cannot fund you, be aware that there are alternate business funding sources.

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When small business financing problems arise, we sometimes forget about what has worked for years and years…factoring. There was a great article in the Phoenix business Journal by Chris Cassacchia that showcased a success story for getting working capital when the bank says NO.

Yes factoring is not a new concept but it is arguably the fastest way to get working capital for your business, sometimes as quickly as 5 days. Yes there are some requirements to is but is is quite simple because it is based on your invoice receivables. If you have contracts to back up the outstanding invoices, you can get cash for your business.

If you are looking for a small business loan based on sound business principles, the bank has turned you down and you need the money fast, get in touch with the business funding expert.

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Are you looking for ideas to finance your small business.  After you have maxed out your family and friends, where do you turn?  Traditional ways include the various SBA (Small Business Administration) programs and traditional bank loans.  But if you are a new company, or had a hiccup in your earnings, banks won’t finance you even in the best of times.  And the SBA programs are pretty restricted when it comes to working capital: only $50,000 and the bank has to take half of the risk.  These sources of financing working capital are available when times are normal.

But now is not normal.  Tightened lending standards are making it harder for small businesses to borrow money. So more are turning to plastic to make ends meet.
A recent survey by the National Small Business Association in Washington, D.C., finds that 44% of small businesses used a credit card to finance capital needs over the past 12 months and 55% had trouble securing credit. Credit cards were the only source of small-business financing that didn’t decrease between 2007 and 2008. And more than half the respondents say their credit-card terms have worsened in the past year.

 
Unsurprisingly, some credit-card issuers are positioning their cards as a way cash-strapped small businesses can get some relief.

 
American Express’s new Plum card, for instance, lets businesses wait two months to pay off their full balance without incurring interest and finance charges, as long as they pay 10% of the bill by the due date. Amex’s SimplyCash card doles out 1% to 5% cash back each month on purchases.

 
Discover Card and Capital One also offer cash-back rewards cards for businesses.

 
One of the hazards, however, is if they carry a balance they can be at the mercy of the bank.  An annual percentage rate can be raised or a credit limit chopped at a moment’s notice.

Some small business owners are taking advantage of some other newer, alternative funding sources.  Peer-to-peer lending sites are an outgrowth of the micro loans industry started for poor borrowers in developing countries.  Business owners with good credit can find money on these sites:  prosper.com and myrichuncle.com.

These are two new sources of alternative financing for small business.  Other kinds of financing include factoring (using your accounts receivable to finance your cash flow), equipment leasing (for both new and used equipment), and purchase order financing.  What kind of financing are you using to get through the credit crunch?

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By JANE J. KIM,  Wall Street Journal

When Jeff Walsh wanted to refinance the small-business loan on his coin laundry, he didn’t want to take a chance that his bank would reject his application. “I just bought a house in 2007 and was a little nervous about what the bank would say about my debt-to-income ratio.”

Instead, the 31-year-old from Schaumburg, Ill., recently borrowed $22,500 on Prosper.com, an online lending network that matches individual borrowers and lenders. The interest rate on Mr. Walsh’s loan: 10.25% — several percentage points below what he says he would have had to pay at a bank.

As the credit crisis spurs traditional lenders to tighten credit standards and raise fees, more small-business owners and entrepreneurs are turning to so-called person-to-person lending networks — with names like Prosper, LendingClub.com and Zopa.com — to help keep their businesses going. The unsecured loans are tiny, usually no more than $25,000. But borrowers say they are able to get loans more quickly and with less paperwork than at a bank. And people with good credit are able to lock in lower rates — often 8% to 12% — than they would otherwise have to pay on credit cards or unsecured bank loans.

Person-to-person lending is a small but fast-growing corner of the Web economy. New sites are jumping in, including Virgin Money USA, majority-owned by Sir Richard Branson’s Virgin Group PLC. Roughly $100 million in new P-to-P loans was issued in the U.S. last year, a number that is expected to jump tenfold by 2010, according to Online Banking Report. Recently, some larger financial institutions have begun to take notice of P-to-P lending, saying that offering loans through the sites is a way to bring in more deposits and reach more consumers.

And, I would be remiss if I didn’t remind you that Arizona Business Funding is an alternative source of funds, if your bank can’t make the loan.

Here’s how it works:

• Client talks to IFG
• Completes paperwork
• Client notifies his customer to pay IFG
• IFG purchases invoice
• 4-5 days to fund first invoice
• 24 hours to fund second invoice
• Cost depends on time invoice is outstanding

Customer comes back to your bank for traditional lending when he has “outgrown” IFG because he has never left your bank.

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