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Some Useful Tips For Managing Your Business Finances

One of the most important things that you, as a small company owner, have to take care of is your small business financing. Huge amounts of money are thrown away every year by small businesses simply because they are not running their financing efficiently. This is also the area of small business where entrepreneurs struggle most, since you cannot work without money-cash flow is the lifeblood of the business.

Small mistakes and lack of knowledge can be sources of serious problems and costs. However, you don’t need to be professional economist to know how to avoid them. Here is some advice that will help you establish a healthy relationship with your business finances.

At the beginning you should consider the professional assistance you may need. If you need money to start your small business, you must get a loan. Many banks can help you with that, the most important part is your small business plan and a clear idea of in which direction your company is going to develop. Besides, you will probably need a trusted bookkeeper who can help you deal with all of the mundane tasks on regular basis (and save you a lot of money and stress). But be sure to understand the various types of bookkeepers and how to avoid fraud.

The first thing you will need to do for your business is to establish a sound financial budget. Open a special bank account for your business only. Try to keep your business transactions and household accounts completely separate. Do not borrow from one to another, no matter how tough the going gets. One of the biggest mistakes is to mix business with household finances.

It is also important that you keep your bank account under control. You may have a bank consultant and a bookkeeper, but you should also have some kind of your own tracking the quotes and work in progress as well as sales invoices. Your bank balance should agree with your book keeping.

Do not give credit terms. Your income depend on your agreement and sales skills. You must ensure that clients know that payment is required on completion, of course it’s much better if you can get part or full payment up front. You must discuss, write down and agree terms of trade, supported by the contract which will protect you. Keep under control when invoices are due to be paid. This is the only way to have your invoices as frequently as possible, and not to lose your own money.

As in all categories of life and business, for finances is the crucial to know your targets. For example, if you need to advertise due to not having a shop front, you should consider very carefully where you advertise and how much money it costs to reach each one of your prospects. Marketing and attracting customers can be very interesting and many business owners get lost in all that, spending much more money than they have planned. At the beginning, but also once and while, set sales targets and monitor them, comparing actual results with projections regularly.

And don’t you forget that each fresh started business rarely shows any profit within the first 3 months, sometimes even much longer. This is the fact you should keep in mind when planning your monthly budget. Be realistic-do not overspend but don’t you either starve your business-since you mustn’t let your business run out of money. Start small and work your way up.

How to Finance Your Small Business

If you have a great business idea or plan, or you would like to expand your existing business, don’t let a lack of funds stop you in your tracks. There is a wide variety of financing available for small businesses. Let’s take a look at the financing opportunities that small business entrepreneurs can take advantage of.

While the financing sources comprise diverse institutions, such as banks, government sources, venture capitalist and “angel” investors, it is useful to look at what all lenders, regardless of category, want when they loan money or invest in a business enterprise.

When you seek money for an already existing business, lenders will be interested to know about the history of your business; whether it has a track record of good management and good performance. Lenders will be keen to know whether you have the ability to repay a loan and will look at your present cash-flow to see whether it is sufficient to enable you to meet your current obligations as well as to take on extra debt.

Your credit history will also be under scrutiny. A good credit history will help you to get a loan. If you have had problems in the past, it is best to bring these to the attention of the lender yourself and explain how you have turned the situation around.

You can also bolster your chances of getting a loan by putting up collateral. This reduces the risk for the bank in case you default. And finally, if you can show that your own personal money is invested in your enterprise then lenders will have more confidence in the proposition.

Many small business loans are turned down due to poorly presented proposals, inadequate collateral, insufficient cash flow and a lack of management experience.

These are the general points that lenders and investors are interested in, now let’s look at the main sources for small business financing.

1. Traditional Lenders: Banks, credit unions, and finance companies are the main source of loans to small businesses. Many of these institutions have a small-business department and are experienced in handling small-business loans. The most logical place to start is with the institution which handles your business and personal banking. You should do your best to get to know the manager and personnel at the bank. So don’t try to save time at the ATM! Being friendly with the bank staff will not guarantee you a loan but it will make it easier for you to make your loan presentation.

2. Government Sources, the Small Business Administration (SBA): The programs of the SBA work in conjunction with the traditional lenders, as they are mostly loan guarantee programs that reduce the risk to lenders in case of default. Some of the popular SBA programs are as follows

a. The 7(a) loan guarantee program: This program helps businesses which lack sufficient collateral, by providing repayment guarantees ranging from 75-85% depending on the size of the loan.

b. The SBA LowDoc loan program: There is only one form to fill out for these loans and approval time is rapid (within 36 hours from when the SBA receives the applications. These loans are only for amounts up to $15,000 but they can be used for start-up businesses.

c. The SBAExpress loan program: This is another quick-procedure loan guarantee program, but it covers loans up to $250,000. The SBA guarantees 50% of these loans, and interest rates in this program may be higher than in the other SBA programs

d. Microloans: These are loans for amounts up to $35,000 which are made by non-profit community based organizations.

3. Venture Capitalists: These are typically firms that are seeking investment opportunities in companies with a high profit potential. Usually when you take money from a Venture Capitalist firm it means that you have to give up some ownership and control to the investors. If you are thinking of going in this direction, then it is imperative to investigate the VC firm, and make sure that it has good references.

4. Angel Investors: These are individual investors who are looking for good opportunities in a wide variety of businesses. You don’t have to be a high-tech company to attract these funds. Angels have smaller sums to invest than venture capitalists, and their investments range from $100,000 to $1 Million. There are a good number of angel investors in the U.S. and Canada, with at least 170 investment groups or angel networks spread around both countries. You can find the angels by making a search on the Internet, looking for angel associations in your particular area of business. You can also inquire with your local small business librarian, the chamber of commerce, your local SCORE office and with other non-competitive businesses.

As you can see from this brief survey, the money for small businesses is out there. Prepare your proposal carefully, and approach the institutions or individuals that best match your needs and capacity.

Small Business Financing Problems and How to Solve Them

Many, if not most, small businesses will experience financing problems at some point during their life. How well management deals with these problems will go a long way to determining the ultimate success or failure of the business. There’s an old saying in business; “Cash is king”, and so it is. There are many instances of businesses being profitable on paper only to be unable to sustain operations due to poor cash flow management.

The financing problems created by improper cash flow management are ranked high on the list of problems faced by business owners. In fact, the 2007 Small Business Survival Index ranks financing problems up on the list of small business problems along with taxes (which can create financial problems of their own), government regulation compliance, legal threats, and finding quality employees.

If your small business is experiencing financing problems, what can you do to solve them? You have several options. You can bring in more revenue, reduce expenses, or become more efficient at managing your cash flow. In most cases you would better served by doing all three. Let’s look at these solutions and how to achieve them.

Increasing revenue is certainly a worthy goal of every business, but may not in itself lead to a solution for your small business’s financing problems. This is because in many cases additional funds are necessary to support the larger operations that create the additional revenue. For example, if you have a contracting business, you’ll need more staffing to take on additional work, which will lead to a short term cash flow problem until collections catch up with your increased labor costs.

This can be seen for manufacturing businesses as well. As your business grows and production levels rise, your business will incur additional plant, equipment and labor costs to support the larger number of orders you’re receiving. Until your receivables catch up with your increased costs you will have financing problems.

This means that increasing revenue isn’t always a solution to cash flow problems,and can actually exacerbate them. Increasing revenue to solve small business financial problems is desirable in the long term, but will only help in the short term if the revenue increase can be obtained without substantially increasing costs or if your business operates on a chiefly cash basis. If you extend credit to your customers, the additional costs required to grow your revenue can easily lead you into a cash position that gets worse before it gets better.

What about reducing costs as a solution to improving financing problems? For most businesses, reducing costs, if it can be achieved without reducing revenue, or reducing costs associated with unprofitable revenue is of utmost importance. Not only do costs directly impact the bottom line, they can reduce the operating efficiency of the business, large or small. Traditionally the largest business expense is labor. While this rule isn’t always true, the majority of business owners can attest to the fact that labor costs are what keep them awake at night. The problem is reducing labor costs while protecting revenue.

The other cost that is especially troubling for many small business owners is taxes. In fact the American Institute of Certified Public Accountants (AICPA), who would be a position to know about such matters, ranked taxation issues as one of the three leading causes of small business bankruptcies. Reducing the tax burden by any legal means is vital to the long term success of your small business. This alone can reduce your financial problems to the point where cash flow problems disappear altogether.

Many small business use some form of financing to finance growth or smooth out the bumps in their cash flow picture. Weather the cash flow problems are caused by expanding operations, inefficiencies, or seasonal business cycles financing is another valuable tool available to the business owner to solve their cash flow issues. Financing solutions for small businesses are available in many forms, including lines of credit, loans, and additional investment provided through either equity or debt financing.

No matter the other problems faced by your small business, it’s clear that financing problems will always rank high on the list of problems faced by small business owners. It’s how well you deal with these problems that will determine the success you experience in your small business.