Small Business Support System

You’ve heard it a million times – cash flow can make or break a business.  Lack of cash flow planning is the reason why many businesses fail.  In fact, many PROFITABLE businesses fail because of cash flow issues.  Without adequate cash flow, you can’t pay your bills and you can’t make plans for your business.

So… what is cash flow planning?  Cash flow planning is projecting your future cash inflows from sales, services, and loans, and comparing them to your future cash flow needs (suppliers, salaries/wages, loan payments, taxes, etc.).  The difference between the two is your net cash flow.

Why is cash flow planning so important?  Cash flow planning can help you identify problems down the road, and fix them before they occur.  Cash flow planning can also help you make decisions such as should I attend that conference I’ve wanted to attend, should I buy the new computer I’ve been wanting, or do I need to work extra hard this month to avoid a cash flow deficiency next month?

The first step in planning your cash flow is knowing where you spend your money!  Solo entrepreneurs need to have a good grip on both their personal and business spending, as most solo entrepreneurs rely on their business income to meet personal finance goals (i.e., pay the bills!).  So, you should track both your personal and your business spending, although I recommend that you keep them separate (that’s a topic all by itself).

What’s the best way to track your spending?  You can use pen & paper, spreadsheets or a software program.  The best method for you is the method that you will actually use on a regular basis.

You should project your spending for at least the next 12 months so that you include annual and other periodic expenses.  If you are experiencing a cash flow crisis, you should track & project your cash flow on a weekly basis, instead of monthly.

If you are an existing business, you can project your cash flow for the next year by reviewing your expenses for last year.  If you are a new business, you will need to estimate your start up costs in addition to regular operating expenses.

Start up costs include inventory, legal expenses, advertising, licenses & permits, supplies, and many more costs that you may not have thought of.  To research startup costs you should contact your local Small Business Development Center, contact a SCORE counselor, join groups of similar business owners, and read as many books or articles you can find on the subject.

To improve your cash flow, you should:

1. Complete the first 3 steps.  You have to understand cash flow planning, track your cash flow, and project your future spending needs before you can improve your cash flow.

2. Create best and worst case scenarios and create appropriate responses to both scenarios.  For example, if your best case scenario is to increase sales by 50%, how will you use the profits?  Will you put the profits back into the company by investing in new equipment, training, etc.?  If your worst case scenario is a drop in sales by 50%, how will you continue to cover your monthly expenses?  By planning for the best and worst case scenarios, you’ll be ready for any situation.

3. When estimating your future income, realize that some people will pay late, and account for that fact in your projection.

4. Charge what you’re worth.  Many businesses, especially service professionals, under-charge when they are first starting out.  This is a great way to go out of business.  Make sure you are charging what you’re worth, and remember you’re in business to make money, not to give your expertise away for free.

5. Watch your business spending.  Focus on the value the item brings to your business, and avoid lavish spending (i.e., do you really need the fastest, newest computer available?).

6. Don’t hire until necessary.  Consider using virtual assistants or temporary employees before hiring permanent employees.

7. Give incentives for early payment for products and services.  On the flip side, chase down invoices the minute they’re late.  Charge interest or late fees to encourage timely payments.

8. Update your cash flow regularly.  Your cash flow plan will change frequently as your business grows.  You may want to update your cash flow plan weekly when you first get started, then switch to monthly once you’ve got a good handle on your cash flow.

If you are looking for a business opportunity, the Small Business Administration (SBA) has an excellent website, including a search option for small businesses for sale in the United States.  They also have financial options for those who are looking for a business opportunity to consider.

Small businesses consistently employ fifty percent of the workforce in the United States.  Fifty-three percent of all small businesses are home-based, while three percent are franchises.  You can always find a business opportunity that has to do with franchises.  Franchises are a worthwhile consideration, simply because in most cases, the name and products are well known.  If you take advantage of this type of business opportunity and buy a successful franchise, you usually don’t have to worry about it folding in the first year.  Franchise.com has a list of franchises offered for sale in the United States, as well as in other countries.  You can look at a list of franchises and decide on the one you are interested in, and then learn more about it.  The website also lists the franchise fees and investment required.

According to the SBA, there were 24.7 million small businesses in the United States in 2004, the last year for which figures are available.  580,000 new small businesses opened in 2004 and 576,000 closed in the same year.  The competition for any small business to succeed is ferocious, but with more than 24 million in existence, it’s clear that they do succeed.

If you are going to be working in the business yourself, it’s important that you buy a business that you truly care about.  If however, this business opportunity is purely an investment for you, then certainly the best business deal financially would make sense.  Some people who open new businesses work 14, 16 or even more hours per day until the business really gets off the ground.  This would be almost impossible to do if you didn’t like what you were doing.

Home business opportunities are as far and wide as your imagination.  You can start your own business or buy an existing one.  You could have an online business, or a more conventional store or office.  If you select a business opportunity that will have you doing something that you love, the money will likely follow.

It’s not difficult to find a business for sale.  There are listings all over the Internet, as well as in almost every newspaper in the country.  What matters, obviously, is finding the right business – one that will meet all of your needs, not just your financial ones.  How much time do you have to devote to this business?  Will this be your only business or one of many?  Will you run it yourself or will you hire people to do that for you?

You can do, or you can hire others to do, some sophisticated market research to ensure that your product or service will sell in certain areas.  Of course, if it’s an online business opportunity, you can do plenty of your own research quite easily.  You can look at what other websites are selling, whether it is a product or a service, and to a degree, you can see how popular they are.

If you need to get a loan for your business opportunity, you have several options.  The SBA can direct you to several loan options, although they don’t lend money themselves.  The SBA is a great place to start anyway, simply because they do have so many resources.  They have a lot of statistical information that you might find helpful in your market research, and they have several free publications to help you along in your small business journey.