Business Advice for Arizona

I am always poking around on the web, looking for free information that can help me or my clients grow their business (after all, what is good for my clients is good for me, right?).  I thought I would share some of the websites I have found helpful over the years.  

Quickerbetterwiser.com - Gene Marks is a CPA, consultant and small business owner that is constantly writing articles around the topic of small business.  Many of the articles that he writes for publications nationwide can be found on his website.

CNN Money - Small Business - The giant CNN and Money magazine have a joint site that provides current news and information for business owners.  I have found the most relevant to be located in the Small Business section.

Business Management Daily - This website has many columns provided by experts in their field.

Docstoc.com - Millions of forms used by other business owners are shared on this site.  If you need a document, check here first.

Entrepreneur.com - The home of Entrepreneur magazine has tons of great information and interesting articles targeting small business owners.

RealSmallBusiness.com - Plenty of information here regarding HR, Sales and Marketing, and Management of your small business.

Obviously, there are probably hundreds of thousands of helpful websites out there.  If there is one that you find extremely helpful, please send it to me.  I’d love to take a look at it!

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I was surprised to read that headline.  Economic confidence among small business owners rose to its highest level in 14 months in April 2008.  Discover Card commissions Rasmussen Reports, LLC,  to survey 750 small business owners every month and that headline reflects its recent findings.  On closer examination, however, small business owners rate economic conditions “fair to poor.”  Here are the actual numbers:  percentage of business owners who say the economy is getting better doubled from 16% in March to 31% in April and the number of owners who see the economic getting worse declined from 69% in February to 51% in April.  These numbers certainly show improvement, but they aren’t all that inspiring.  The most optimistic business owners were those in business for less than 2 years.

As we come out of this recession, where are small businesses turning for financing.  I’d like to give you a couple of stories about recent transactions at The Interface Financial Group (IFG). 

The Interface Financial Group is one of the few factoring firms that will finance sub-contractors in the construction industry.  Until the recent economic turmoil, IFG targeted companies with $250,000 to $5,000,000 in sales.  In December 2008 IFG financed a window distributor and installer who had done about $6 million in sales for the first half of 2008.  Then, the contracts that he had on his books for the second half of the year didn’t mobilize.  Sound familiar?  His competitors went out of business. 

IFG Knows Construction!

A general contractor on a mixed-use commercial/residential project approached him to supply and install the windows.  He took on the business, who wouldn’t?  He ordered the windows from his usual supplier.  But when the time came to take delivery of the windows and install them, his supplier refused to ship the windows because the supplier was owed money on previous orders that had not been paid.  IFG was able to structure a transaction, including subordination from two banks, where IFG advanced money so that the window supplier was paid.  He shipped the windows, and our client installed them.  The client completed the progress billing to his general contractor, and IFG was paid about 53 days later.  Usually, IFG is able to complete a transaction in 48 hours; because of the bank subordinations, this transaction took longer – 8 business days. 

Our usual transaction size is $25,000 to $50,000.  The transaction just described was for a total of about $500,000.  The next transaction is on the other end of the spectrum.  In March I talked to a staffing company in the construction industry that had done about $8 million in revenue for 2008.  But, as we all know, business died in the latter part of 2008 and early 2009.  He was having trouble making payroll.  Sound familiar?  He liked the concept of our “use it as you need it” service, but he didn’t want to have his customers notified that he had sold the invoice to IFG.  On a Wednesday afternoon he changed his mind and called me.  I visited his office on Thursday morning and funded him by the 1 p.m. wire deadline on Friday for a total of about $16,000.  IFG was paid about 45 days later.

The survivors will need financing as we come out of this recession.  The Interface Financial Group is fast, flexible,  and cost-effective.

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ASU Spirit of Enterprise hosted a panel discussion on “Coping with the Credit Crunch.”  The panel consisted of Phillip P. Guttilla, Corporate Attorney with Ryley Carlock & Applewhite, Lauran Lindsey, Assistant Professor of Finance at the W. P. Carey School of Business at ASU, and Dr. John Shufeldt, CEO of NextCare Urgent Care.  The moderator was Gary Naumann, Director of the Spirit of Enterprise Center at ASU. 

The program was attended by about 40 people, including bankers, CPA’s, business owners, and finance professionals.  The first part of the program was “Taking Your Financial Pulse.”  The take away from this section, is that, as a business owner, you need to know your company’s numbers.  Even if it is not your strongest suit, lenders will want you, as the owner, to present your company.  Are you monitoring you “days outstanding sales?”  When is the last time you looked at “sales per full-time equivalent employee?”  Have you been monitoring your margins, your receivables?  Have you been communicating with your suppliers?  with your banker?  Have you been doing your collections?  Your banker wants to see that you are on top of your business and that you are adjusting to the current climate.

The second section focused on “Are you prepared to go looking (for financing)?”   Have you updated your sales forecast?  Can you show where the increase is going to come from?  Is it new customers?  Is it deeper penetration into your current customer base?  What is your cash cycle?  There’s an old saying “Cash is King.”  It is always true, but it is even more true today.  Those that have watched their leverage, managed their business carefully, will be able to take advantage of opportunities that will arise.  You need to know how much cash you will need;  the rule of thumb is to ask for 18 months of cash needs — one year of cash plus an additional 6 months to line up the next financing source.

The third section focused on “Sources of Financing.”  Even though we all read the paper and watch TV as the politicians harangue the bank presidents about lending, there is money being lent.  You have to work harder to find it and you have to be prepared to show that you are credit-worthy and know how to the money that might be availabe.  Some banks are lending;  you will have to go to more than one bank.  I suggest that you go to the ones that have not been in the news;  they are the ones that have to cut their lines of credit in order to support commitments they have already made.  Try privately held banks, new banks; these banks are less likely to have as many bad loans that they are working out of.

Other types of financing — asset based lenders, factors, invoice discounters.  If you own equipment, see if you can sell it and lease it back.  SBIC’s are Small Business Investment Companies; they finance small companies with loans and equity.  If you are large enough to have $1 million in EBITDA, there is private equity capital available.

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I sent out my monthly newsletter on Tuesday “No, The Sky Is Not Falling.”   After a few more days of momentous news, I thought it would be good to review the idea once more.

In tough times, my mother-in-law used to say “This, too, shall pass.” I’m not sure that it ever made me feel better at the time, but it certainly is a true saying. Here are some excerpts from today’s editorial in Investor’s Business Daily: “This Too Shall Pass.”

Wall Street: Old timers will recall F.I. DuPont or Goodbody & Co. Not-so-old timers remember E.F. Hutton and Kidder Peabody. Now we can add Bear Stearns and Lehman Bros. to the storied names that have fallen.

We drop these names (and we could have mentioned a hundred more) for two reasons: (1) to remind readers that this isn’t the first time an investment bank or brokerage has gone under, and (2) to point out that the country has always survived and grown.

In fact, what’s happening now is quite normal in a financial system characterized by booms that lead to excesses that then require financial corrections before any renewal takes place. We’d be hard-pressed to remember a bear market when one or more financial firms didn’t go out of business.

In the oil crisis of the 1970s, for example, major financial companies such as Penn Central and Franklin National went bust. The booming ’80s saw hundreds of banks go belly up due to bad loans made to the farm sector and the Third World, and, later, S&L loans to U.S. homeowners.

The ’90s? Remember the Long-Term Capital Management debacle in ‘98, following the Asia Crisis in ‘95, and coinciding with Russia’s ruble meltdown? Then, too, we heard predictions that the world as we knew it was ending. It wasn’t.

Yes, the problems to be worked out this time seem scarier than most. And watching institutions like Bear and Lehman fail, and Merrill Lynch taken over just like that, doesn’t inspire , .

But they’re no different from other investment firms of the past that have paid the price for making too many bad decisions or taking too many risks in what is already a high-risk business.

How long all this will last is anyone’s guess. But this a big country, with a highly liquid market and a still-strong economy. We’ll get through it.

For financing small business, follow this link.

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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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Welcome to your source for advice for managing your small business.

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