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There are many things to handle when you own a business: Of course, you need to be on top of sales, inventory, and advertising. You also probably have your hands full with everything from shipping to social media marketing to labor issues.

 

So, when was the last time you monitored your business credit?

 

If you are like most small business people, you haven’t done it in quite a while. While that’s understandable, it is also a mistake - and a potentially costly one at that.

 

Example: Joe owned a computer repair shop for many years. It was an established and successful business, so he never thought much about business credit. He ran his business off of his profits.

 

Then the recession hit, and Joe’s business took a dive. The problem for Joe was that because he had been ignoring his business credit for so long, when he needed a short-term line of credit to tide him over, he couldn’t get it.

 

It turned out that for many years, inaccurate derogatory information was being reported to Joe’s business credit profile. A company with a similar name to Joe’s business had hit hard times too, started paying its bills late, and eventually filed for bankruptcy. All of that was, unbeknownst to Joe, mistakenly being reported onto his business credit report. Since Joe had not been monitoring his credit, he never caught the mistake, and when the time came for Joe to use what he thought was stellar credit to help his business, it was almost too late.

 

It took six months of letters, documentation, and acrimony before the errors were discovered and corrected, and in that time, Joe almost went under.

 

Don’t think that Joe’s experience is unique, because it’s not. More than one billion pieces of information are reported to personal and business credit files every month, so there are bound to be mistakes. The way the system is designed is so that it is incumbent upon you to make sure your credit profile is correct. It is your responsibility to check your credit, no one else’s.Steve-Strauss--in-article-Medium.png

 

Up front, it is important to note that your business credit should not be the same as your personal credit, although for a lot of small businesses it is. Most people start their business with their personal credit, at least partially. However as soon as you can, you need to separate the two. The way to do that is to set up a separate and distinct credit profile for your business. You do so by getting a taxpayer ID number from the IRS, and then a DUNS number from Dun & Bradstreet Credibility Corp.

 

You may also need to review your personal credit profile. You are allowed by law to receive a free personal credit report, once a year, from AnnualCreditReport.com.

 

Click here to read more articles from small business expert Steve Strauss


Monitoring your credit report(s) allows you to:

 

Find and correct false information: As Joe’s cautionary tales exemplifies, you must monitor not only your personal credit profile, but your business profile as well.

 

There are any number of things that can be inaccurate on your business credit profile:

 

  • Someone else’s bad information showing up on your credit report as yours
  • Debts that are not yours being reported as yours
  • Omissions of your good payment history
  • Not having false or outdated information being removed after 7 to 10 years, as the law generally requires

 

And the beat goes on. It is vital therefore that you closely monitor your DUNS report so you can catch errors before they hurt your business.

 

Avoid identity theft: In this era where even large corporations can get hacked, it behooves all of us to keep a very watchful eye on our credit report. According to a study by McAfee, 60% of small business that are a victim of identity theft never recover and go out of business within six months.

 

Get the credit you deserve: The point of all of this monitoring is to make sure that your business credit report accurately reflects that you pay your bills on time, because once it does, it also shows potential lenders and investors that your business is a good risk. The likelihood that you will get the credit you need grows with each positive entry on your credit report.

 

Thus, by regularly monitoring your credit profile, paying your bills on time, and keeping your debt low, you may be able to get a good loan at a reasonable rate when you need it.



About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.


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Time_Management_body.jpgBy Iris Dorbian.

Few would argue that being a small business owner can be enormously demanding. Whether it's dealing with vendors, managing staff, or serving customers, finding the right balance for these tasks can be a formidable challenge. While some try to handle the time management dilemma by working overtime every day, this kind of solution can often lead to burnout. How then can business owners successfully manage their time without sacrificing their health and personal lives?

Following are time management tips from several small business owners who have faced this challenge:

1. Don't be afraid of shutting down technology to complete a project.

Because technology allows us to instantaneously access information via an unending assortment of mobile or wireless devices, it can be tempting to constantly check for e-mails or alerts—and then just as quickly respond to them. Try to avoid this trap. Unless you are waiting for a time-sensitive response from a client, your time is probably better spent attending to other aspects of your business.

Diana Ennen, president of Virtual Word Publishing, an online PR/marketing firm that handles book authors, wholeheartedly agrees.

“You absolutely need to focus and turn off all notifications when working on projects,” she urges. “That means turn off your cell phone, social media, Skype, or e-mail notifications. Log out of Outlook so that way you won't see new e-mails coming in. If it helps, set a timer and work for several hours.”

To prove her point, Ennen, who works with four subcontractors regularly, says she often does this when writing press releases and articles for clients. As a result, she can complete the job easily. “It's so much better because I've committed to it and am fully focused,” she says.

2. Carve out a block of time to complete jobs.

If you want to use your time productively, schedule in your calendar a block of time to work on a key job or project. This way you will be able to concentrate on what needs to be done without scattering your energies or letting your attention wander to a host of other things.

Time_Management_PQ.jpg

Dana Manciagli, a Bellevue, Washington-based career consultant with her own business, says this is an imperative.

“Schedule your important work as an appointment to yourself,” advises Manciagli, who previously worked at Microsoft as a worldwide sales manager. “If you need to write proposals that you are not getting to, open your calendar and make an appointment with yourself for it. If you need to remind yourself which ones to work on, put more details in the body of the invitation.”

3. Master the art of saying no.

Cultivating potential customers and associates at meetings or networking events is good for business. But if your attendance prevents you from planning your monthly budget or training new personnel, you might have to decline the invitation to focus on the task on hand. Be strategic when weighing the pros and cons of invitations as well as favors that others may ask of you.

“Learn how to say no,” insists Manciagli. “I made a lot of mistakes in my first year [as a small business professional] and this is one of them. Ask yourself: Which line item of my P&L will benefit immediately if I attend this event? Cost-Savings? And within revenue, be more specific with yourself. Will new clients be there? Will I get leads? If not, say ‘no, thank you.’”

4. Get up early.

It might be a platitude but the old saying, “Early to bed and early to rise makes a man, healthy, wealthy and wise,” might have some validity for business owners seeking to better manage their time. Drew Stevens, owner of Stevens Consulting Group, which helps small struggling healthcare professionals improve their revenue, endorses this takeaway as a great way to get things done.

With the extra time, Stevens says small business owners can review a perplexing client issue or look over notes or PowerPoint slides for an upcoming board meeting. “I remember getting up at 5 a.m. to get my master’s work done before I commuted to work,” he says. And if you do commute, do some work on the train rather than read a book or sleep.”

5. Create a to-do list.

Sometimes scheduling time to complete a project is not enough. You might need to actually write out a to-do list on a regular basis. Then once you're finished with each task, just cross it off until you get to the next job. It might sound like an obvious time management solution for small business owners, but not too many do it, says Essen. However, if you don't adhere to this simple best practice, you might be subjecting yourself to a lot of all-nighters.

“To feel more in control, make this a habit—even on your busiest days,” she advises. “It takes away the feeling of being overwhelmed and the fear of forgetting something. For me, it has been instrumental as well in completing larger projects, such as redoing my website. It's amazing how freeing it is to take large projects a chunk at a time. And if they don t get done, put it on the list for tomorrow.”

6. Learn to delegate.

As a small business owner, it is not incumbent upon you to do everything yourself. Lighten your load by learning to assign some duties to your staff or others who can help you.

Says Stevens: “There is no reason to be involved in everything. For example, I operate a very busy coaching business and recognize I cannot do it all. To that end, I hire freelancers for my graphics, my invoicing, my collections and even printing. This allows me to focus on my most vital aspect—clients.”

Inc.

Guide: Keys to Cash Flow Modeling

Posted by Inc. Jan 28, 2014

Cash-Flow-Modeling---Thumb.gifBusiness evaluation and forecasting resources are especially valuable for small business owners and sole proprietors whose responsibilities extend to every facet of the company’s operations. Cash flow modeling tools can support their decision-making, help to ensure that the company is prepared to handle emerging challenges and opportunities, and strengthen relationships with lenders who can contribute to the company’s long-term success.

 

Click here to download the guide "Keys to Cash Flow Modeling"

Inc.

Back-to-Basics Cash Flow

Posted by Inc. Jan 21, 2014

There are very good reasons for business owners to stay on top of their cash flow, says Robert W. Duron, CPA, associate professor at Husson University’s School of Accounting. A business with well-managed cash flow runs more smoothly and finds it easier to establish and maintain the kind of credit rating required to secure financing for future growth and expansion. Perhaps most important, managing cash flow effectively helps you avoid the kind of surprises that can result in a sudden and unexpected cash crisis, he says.

 

In its basic form, cash flow is simply the total inflows of cash from operations, loans, and capital investments, minus the total outflows from operations, loan repayments, capital expenditures, and equity distributions, says Greg Wank, a partner at accounting firm Anchin, Block & Anchin. The basic cash flow formula is:

 

Beginning cash + Cash receipts – Cash disbursements = Ending cash

 

This can be broken down further into operating cash flow (solely from the buying and selling of goods and services the company is in business to provide), investing cash flow (capital expenditures and other cash flows from long-term investments), and financing cash flow (from debt and equity activity).

 

Cash flow modeling typically is fairly straightforward, but the information it provides is only valuable to your business if you use the right information and input it accurately, warns Doug Mitchell, a partner in Hardesty LLC, which provides on-demand financial management executives to businesses. For example, make sure the “Beginning cash” amount you use in the formula above agrees with the amounts that appear on the statements for your business bank accounts. For the “Cash disbursements” amount, make sure you include:

  • All accounts payables
  • Vendor invoices which have not been received but for which the service or product has been delivered
  • Payroll
  • Loan and/or lease interest and principal payments
  • Capital expenditures

 

To help ensure greater accuracy in the “Cash receipts” variable of the formula, Mitchell suggests organizing them into product and/or service categories, then checking off each category as you add them up. So your formula for determining cash receipts for each individual category is:

(Product/service item) x (quantity sold) x (price) = Cash receipts per category

 

Aron Susman, CPA, is a co-founder of TheSquareFoot, an online platform for commercial real estate leasing. He credits careful cash flow management with enabling his business to expand into three cities since its launch in 2011. “I think businesses overemphasize revenue and do not stress enough about cash flow,” he says. “Revenue is great, but if you are not collecting—and thus have huge accounts receivable—those revenues do not matter. I do not think you can compete in today’s environment if you are not monitoring your cash flow.”


Duron stresses that cash flow management must include a forward-looking perspective to be strategically useful. Start with beginning cash and then estimate both cash receipts and disbursements for a set planning period, he suggests, and he seconds Mitchell’s observation on the importance of including credit terms in those projections. “Sales made in one month may not be collected until one or more months after the sale,” he says. “Over time, a business owner can forecast with surprising accuracy what percentage of sales and/or purchases will be received or paid in a given month.”

 

Mitchell says one of the biggest mistakes owners of growing companies make is underestimating the amount of working capital they need. “Most entrepreneurs are optimists and tend to overstate revenues and understate expenses and surprises,” he observes. Other common mistakes he sees in his practice include:

  • Not linking the cash flow model with the P&L or balance sheet
  • Not linking the cash flow model to the sales forecast
  • Not allowing an extra margin to absorb a receipts shortfall
  • Not balancing/reconciling bank accounts on a routine, daily basis
  • Not monitoring payment patterns of key customer accounts
  • Insufficient attention paid to days sales outstanding (DSO) of smaller customers and to significant past due balances

 

Cash Flow Tools


Most accounting software programs include a variety of cash flow management and charting tools, and many additional resources are available online. Robert W. Duron, CPA, associate professor at Husson University’s School of Accounting, suggests:

 

Aron Susman, CPA, a co-founder of TheSquareFoot, suggests the SBA site is also a good source for answers to common questions about cash flow management. Check out the Managing Small Business Cash Flow – Answers to 10 Commonly Asked Questions blog post and the projected cash flow calculator, in particular. 


Article created by Inc. © Inc.

Content created exclusively for Bank of America.

Business-Model---Thumb.gifImplementing a business model change presents small business owners with both challenges and opportunities. By defining your goals and benchmarks, making sure you have the resources to execute the change, and creating a plan to mitigate the risks involved, you can create a foundation for ensuring that your plans remain on track and perform to your expectations.

 

Click here to download our guide "When to Change Your Business Model"

In order to be effective, a good business tool must be simple, easy to deploy, and provide clear benefits. That, in a nutshell, describes a dashboard. “Like the sun rising in the morning, dashboards are reliably available—same time, same day of the week, without fail, regardless of sickness or bad numbers,” says Jim Drew, a business coach and consultant specializing in CEO-level strategy and leadership. Dashboards provide a simple, one-page snapshot of the key performance indicators (KPIs) you select for your business, and you can customize them to cover the three or four critical issues you most want to track at any given time.

 

Standard indicators that all businesses should be tracking include revenue, profit margin, percent of repeat business, customer lifetime value, average order/transaction size, type of product or service purchased, and marketing source for the transaction, says Yoon Cannon, a serial entrepreneur and business growth coach. Choosing the right KPIs to include in your dashboard is a function of the industry you are in and the specific goals laid out in your most recent business plan or strategic plan. (Retail metrics firm Kipfolio offers this link, which illustrates of some common KPI metrics [conversion rate funnel, sales per square foot/location, average purchase value, cost of goods sold, etc.] in dashboard report form.]

 

“For example, at a staffing company, the number of hours booked for the temporary workers placed is a key driver of profitability and should be included in the dashboard,” Cannon says. “Profitability at a landscaping company, on the other hand, might be more directly affected by how well job-costing numbers are being met. Having that KPI in a dashboard can help to hold project managers accountable for getting their crews to finish installations on time or ahead of schedule.”

 

Growth-oriented businesses doing up to about $1 million in annual revenue should focus on KPIs with the most direct impact on cash flow and profits, says Sabrina Parsons, CEO of Palo Alto Software, a developer of business planning and marketing tools for growing businesses. The time periods used for measuring KPIs are also important. Businesses in the early stages of growth should always compare KPIs to the previous period (this month vs. last month), the same period last year (this month vs. same month last year), and the planned forecast (what your business plan or financial projections call for you to be achieving).

 

Drew Williams, managing partner at business consulting firm nuRevenue Partners and co-author of Feed the Startup Beast (McGraw-Hill, June 2013), says the most important advantage a dashboard provides to growth-stage companies is an answer to the question, “Am I on track to meet my annual objectives?” “The benefit, of course, is knowing that your business is headed in the direction you set out for it, and the sense of control that imparts,” he says. “Control and visibility make for a happy, less stressed, more empowered owner.”

 

Dashboards are easy to come by. They’re available as off-the-shelf software or on a subscription basis via the cloud, but the concept is simple enough that many companies choose to make their own. “You can easily create your own dashboards in a simple Word document which you populate with whatever metrics you choose,” Cannon says. “You can also get great dashboards from Excel.”  Canon recommends this free resource for finding a range of Excel templates.


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Content created exclusively for Bank of America.

It’s a rare business that operates on a “one-and-done” model when it comes to customer transactions. “Most companies now realize that the value of a customer transcends a single transaction,” says Ken Homa, a professor at Georgetown University’s McDonough School of Business. Managed effectively, the “right” customers can provide a lifetime of transactions and an extended stream of sales and profits, he says.

 

Customer lifetime value (CLTV) represents the profit you can expect to realize from sales to a particular customer starting from the time he or she begins doing business with your company. Calculating CLTV requires the use of historical data, which in and of itself is backward-looking, but the exercise is all about looking to the future. Determining CLTV can help you shift your focus from short-term results to a longer-term perspective on the overall health of your business. It also provides important guidelines on how much you should spend on acquiring new customers versus retaining existing ones.

 

Homa breaks down CLTV as a function of four variables: customer acquisition costs; projected sales, profits, and cash flows; customer defection and retention rates; and company discount rate (the cost of capital). So, the general formula for calculating CLTV is:

 

CLTV = (M/d + i) – AC

 

  • M represents the annual profit margin generated by a customer
  • d is the annualized defection rate (sometimes referred to as “churn”)
  • i is the annual discount rate (cost of capital)
  • AC is the cost of acquiring the customer.

Using a highly simplified hypothetical example of the above formula where:

 

  • M = $175 (net profit realized on final day of fiscal year)
  • d = 20 percent
  • i = 10 percent
  • AC = $250

 

Then:

 

CLTV = $333.

 

CLTV is essential to generating an effective customer relationship management (CRM) strategy, says Graham Cooke, CEO of Qubit, a retail technology company focused on CRM and automating tag management. “As marketers, we need to focus on the high-value customers, or customers with the potential to become high-value, to maximize our bang for the buck. By calculating CLTV you can do more effective segmentation of customers and then tailor your CRM strategy accordingly,” he says. Effective segmentation using CLTV allows you to lower customer acquisition costs by improving your ability to focus marketing resources on the most valuable targets. “If you can identify consumers with the highest propensity to convert and the highest potential value, your ROI from these paid channels will be much higher,” Cooke says.

 

While the concept of CLTV is equally applicable regardless of company size, smaller businesses may not have the information systems in place to capture and report all the data needed, especially for more sophisticated modeling approaches, Homa acknowledges. “These companies have to decide if building the systems to collect and analyze the data is worth the investment. Usually, it is,” he says. Mark Gayle, founder of 5K MVP, a developer of Web applications for businesses, points out that smaller businesses with limited data resources can use low-cost technology such as social media to identify customer segments with the greatest potential CLTV. They can then combine good insight and business agility to reap the benefits of CLTV on a minimal budget.


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Content created exclusively for Bank of America.

Inc.

How P-Cards Streamline Payables

Posted by Inc. Dec 3, 2013

The use of purchasing cards (P-cards) has been growing steadily since their introduction in the 1990s. P-card spending in North America increased by almost 22 percent from 2009 to 2011, when it reached $196 billion, according to RPMG Research Corporation’s 2012 Purchasing Card Benchmark Survey Results. That growth is being driven by P-cards’ ability to leverage automation and technology to streamline the purchasing process, helping business owners increase efficiency, save money, and gain insight into their spending patterns. However, the scope of P-cards’ potential advantages is tied to scale, so early-stage growth companies should conduct a careful analysis before launching a program.

 

P-cards are part of the commercial card product category, which also includes corporate travel and entertainment (T&E) cards, small business cards, and similar products. Commercial cards can be credit, debit, or prepaid cards. A P-card allows organizations to take advantage of the existing credit card infrastructure to make electronic payments for a variety of business expenses, goods, and services, according to the National Association of Purchasing Card Professionals (NAPCP).

 

According to a recent report from PayStream Advisors, the three most important benefits cited by organizations using P-cards are increased convenience for employees (72 percent), rebates and incentives from P-card issuers (67 percent), and lower processing costs (56 percent). The key drivers behind increased adoption of P-card programs are a desire to reduce procure-to-pay transaction costs, a push to eliminate paper, and a desire for better cash management.

 

A traditional procure-to-pay process usually involves a requisition, purchase order, invoice, and check payment, and it is the same regardless of the dollar amount of the purchase; the process cost of a $25 purchase is the same as for that of a $10,000 purchase. Estimates of individual transaction costs using the traditional procure-to-pay process range from $50 to $200, according to the NAPCP, meaning the process cost can easily exceed the price of the item or service itself in the case of smaller purchases. When the payment method is switched from the traditional process to a P-card process, efficiency savings range from 55 percent to 80 percent of the traditional process cost, the group reports, with P-card usage saving $63 per transaction, on average.

 

“P-card issuers tend to target their marketing towards existing businesses with substantial levels of annual revenue and a solid, verifiable financial track record,” explains Greg Hammermaster, president of Sage Payment Solutions. “The underwriting process can be fairly arduous, and online P-card management systems tend to be more focused on the mid-size and larger markets.”

 

Before embarking on a P-card program, you should conduct a thorough analysis to determine if it is right for your business, Hammermaster advises. Factors to consider include:

  • the cost savings you expect the program to provide
  • how widely the card will be accepted by vendors and suppliers
  • what kind of technology support will be required (accounting, information management, etc.)
  • your company’s current state of creditworthiness
  • the structure and controls you will have to put in place
  • risk management (protecting against abuse, misuse, and liability)
  • and what kind of support you will have to provide (implementation, training, cardholder support, etc.).

 

In some cases, developing businesses may be better served by alternatives to P-cards, some of which can provide many of the same advantages. “Business prepaid cards, for example, offer the same level of controls, such as blocking merchant categories and setting spending limits,” Hammermaster notes. Unlike P-cards, prepaid business cards do not require credit checks or underwriting, which can be important for business owners looking to keep their personal assets separate from their business liability. Some prepaid business card programs include other useful features, such as mobile apps that let cardholders view their balances and transaction history and request additional funds. “That lets the business owner or program administrator fund the cards instantly on an as-needed basis,” he says.

Article provided by Inc. © Inc.

Content created exclusively for Bank of America.

 

Sales Forcasts Guide Thumb.jpgWhen you run a small business, even a small divergence from sales forecasts to actual performance can create huge management challenges. But experts advise that by approaching sales forecasting more strategically, owners of small companies can achieve more predictable, reliable results that foster their capacity for well-managed growth..


Click here to download our guide "Sales Forecasts That Paint a Real Picture of Your Business"

Paying bonuses based on a company’s overall financial success can be an effective strategy to get employees pulling in the same direction, and smaller organizations may actually have an advantage over larger ones in this area. “I believe it’s easier for a smaller business to tie individual incentives such as bonuses to corporate performance,” says Priya Kapila, manager of compensation consulting at CBIZ Human Capital Services. “That is because there are often fewer employees performing varied functions with the goal of advancing the business. As a result, there is often greater transparency with respect to financial performance, and most employees are vested in seeing the company succeed.”

 

David Lewis, president and CEO of OperationsInc., a human resources outsourcing and consulting firm, agrees. He says tying compensation to company revenue goals is easy: “Just put a revenue goal on it, but make sure you account for unforeseen expenses and initiatives that could alter profitability. I think the bigger the business, the more distractions and factors enter into the equation, with larger firms tending to tie compensation of this nature to individual goals and objectives, in concert with the company’s success.”

 

The vast majority of organizations—more than 90 percent—provide some kind of incentive/bonus compensation plan to their employees, notes Tom McMullen, U.S. reward practice leader at global human resources consulting firm Hay Group. “It is an attractive tool because variable pay aligns with the business’s success—and risk—much more than fixed pay such as base salary and benefits do,” he says. McMullen suggests six practical steps businesses of any size can adopt to make their review process for determining compensation more effective:

  1. Help employees to view their pay as more than base salary and bonuses. “Total rewards” also include recognition, meaningful work, and career opportunities. Raising employee awareness in this area can boost morale and increase motivation.
  2. Clearly communicate the link between performance and rewards. Clearly explain the reasons for any reward and the amount. Employees who understand how specific actions and outcomes lead to specific rewards are more motivated to pursue them.
  3. Ensure that performance assessments and total rewards appropriately differentiate the best, solid, and weak performers. It’s a fact of business life that not all employees are created equal, at least as far as performance potential is concerned. Employees with the ability to perform at a superior level will be more motivated to do so if they know their resulting compensation will be significantly better than that of lesser performers.
  4. Understand what truly engages and motivates employees. “Often, it is much more than money,” McMullen points out. “Be mindful that different people value different rewards.” Then use that understanding to match performance-boosting incentives to individual employees.
  5. Assess and improve the organization’s work climate by training managers in how to motivate their employees.
  6. Use feedback as a gift. Make it meaningful, and give it often. In the process, be sure to emphasize how changes in an employee’s performance will be rewarded.

 

Owners can and should use the review process and bonuses to effectively set clear expectations with employees, to shift any priorities as needed, and to encourage desired behaviors, says James A. Mutz, director of benefits & 401(k) at CoAdvantage, a provider of human resource outsourcing solutions. “In the design of employee compensation plans, business owners need to have transparency and visibility. They need to be open with their employees, and the organization’s goals should be understood. Communicating where the business stands and how the company is doing is a must,” he emphasizes. “One thing some business owners forget is to write it down. Make sure the plan is clearly documented and communicated so there’s no misunderstanding.”

 

 

Article provided by Inc. © Inc.

Content created exclusively for Bank of America.

232.jpgLines of credit (LOCs) and credit cards are two financing options that are popular with many business owners, especially for short-term or unexpected projects and expenses. Technically, a credit card is a type of LOC, but there can be important differences between the two regarding terms of use, interest rates, repayment schedules, and other factors. Understanding those differences can help you make the right choice when deciding which form of credit to use for a particular purpose.

 

A credit card is a revolving line of credit where there are no fixed payments, explains Joel Ohman, a financial planner and founder of the website CreditCardChaser.com. Many LOCs are installment lines of credit and may have fixed payments. “Practically speaking, credit cards and lines of credit serve different yet related needs. When a business needs access to larger amounts of credit, a line of credit is often the more appropriate choice,” he says. “But a credit card is unmatched when it comes to convenience and ease of use.”

 

A business credit card account utilizes a plastic card at the point of sale, the same as with a consumer credit card, while a line of credit is typically accessed by writing a check, says Ben Woolsey, director of marketing and consumer research at CreditCards.com. However, some LOCs also come with a debit card that can be used just like a credit card in many situations.

 

Convenience makes business credit cards the best choice for day-to-day buying, and they offer other advantages as well, says Greg Hammermaster, president of Sage Payment Solutions. Business owners can set credit limits on each card, and electronic transaction data related to cards usage can be integrated with business accounting and expense management programs to provide significant business process efficiencies. Many business credit cards also offer corporate benefits or rewards, such as points/miles that can be used for travel expenses or cash rebates.

 

If a business knows it’s going to need to borrow for longer periods of time, has larger borrowing needs, and has a verifiable financial track record of at least two years, a line of credit is usually the better option, suggests Erik Larson, president and founder of NextAdvisor.com. Often, the most important factor to consider when choosing whether to use a credit card or an LOC for a particular purchase is how soon you will be able to pay it off. “If you have the cash to pay the balance due in the current billing cycle, it can be easier and cheaper to use a credit card,” he says. “If it’s going to take a lot longer to pay off, and this is a recurring situation for your business, it probably makes sense to use the LOC. A line of credit generally has a lower interest rate than a credit card, and the interest savings usually more than make up for any fees associated with it.”

 

In the end, the right choice is the one that best fits your specific needs and situation, Ohman stresses. “Different businesses in different industries often have quite different financial needs. Be careful that you don’t begin using a particular financial product just because a business owner in a totally different industry recommended it,” he says. “Ask around, and see what kinds of things are working best for others who own businesses similar to yours.”


Credit Lives vs. Credit Cards


Line of Credit*

  • Generally installment line
  • May have fixed payments
  • Usually lower interest rate
  • No interest-free period
  • Best for longer-term/larger borrowing needs

 

*May or may not have fees


Credit Card*

  • Revolving line of credit
  • No fixed payments
  • Usually higher interest rate
  • Interest-free grace period
  • Best for convenience/shorter-term/lower-dollar purchases

 

*May or may not have fees

 

 

 


Article provided by Inc. © Inc.

Content created exclusively for Bank of America.


Financial-Help-Thumb.jpgFinancial professionals offer small business owners assistance that extends beyond performing bookkeeping and accounting transactions. By choosing the right resources for each stage of the company’s growth, owners can ensure that they’re supported by the financial expertise necessary to attain their goals.

 

Click here to read the Inc guide titled Getting a Handle on the Financial Help You Need.

Inc.

Be the Squeaky Collections Wheel

Posted by Inc. Oct 15, 2013

The old adage “time is money” is not just a figurative saying; when it comes to collecting past-due invoices, it’s literal as well. According to the Commercial Law League of America, the longer you wait to go after money that’s owed to your business, the less likely you are to collect it. About a quarter of receivables become uncollectible at three months delinquent, more than 40 percent at six months, and fully three quarters at 12 months past due. “A small collection problem can become a large collection problem quickly if it is put on the back burner,” warns Jill S. Marks, an attorney at Sage Law Practice Group, PC, based in Hampton, Virginia.

 

Uncollectible receivables represent a total write-off to the creditor, the worst type of all collections-related losses. But there are also costs associated with invoices that are eventually paid but well past the due date. This is known as the time value of money, and the formula to determine it is PV=C / (1 – Cost of Capital); PV is the present value of the amount owed, C is the cash collected, Cost of Capital is the business’s annualized cost of money or expected return, and n is the number of periods in the future the collection occurs.

 

More detailed information on the time value of money can be found here, but what it really boils down to is that “cash is fungible—if it doesn’t come from one source (accounts receivable), it’ll have to come from another,” says Mitchell D. Weiss, adjunct professor of finance and a board member at the University of Hartford’s Barney School of Business.

 

Insufficient collection efforts often are the beginning of a company’s cash flow constraints, says Clint Sallee, president of Fidelity Creditor Service, a collection agency based in Glendale, California. Another old adage is “the squeaky wheel gets the grease,” and in this context it means businesses are more likely to get paid when they take a proactive approach to collections. “Once you know that the customer is not going to make prompt and complete payment, don’t wait for something magical to happen,” Sallee advises. “Get proactive. Escalate the issue internally or up the chain of command at the debtor’s company—or both. If that doesn’t work, consider your external options.”

 

Elliott M Portman, an attorney and partner in the creditor’s rights department at Roe Taroff Taitz & Portman, LLP in Bohemia, New York, suggests these best practices to improve collection efforts:

  • Speed up the payment cycle; for 30-day accounts, call on day 31.
  • Tone and tenor are essential; don’t apologize about asking for what is legitimately due you.
  • Get credit card information when an account is opened; faster payment can offset transaction costs.
  • Make sure invoices are correct and complete.
  • Understand client payment cycles; time your invoices to arrive a few days prior to the day they issue checks.
  • Add payment options such as online.
  • Get invoices out faster; on large jobs, invoice segments as completed.
  • Know your customer’s stress points; if you are their key supplier, remind them during the collection call.
  • Revoke credit privileges for customers who default on terms.

 

Of course, business owners don’t want to alienate or offend customers unnecessarily, and that can be avoided by using a customer service approach on the first delinquent account call, suggests Jeff DiMatteo, president of American Profit Recovery, a Marlborough, Massachusetts-based collection agency with additional offices in Michigan and North Carolina. “Let the customer know you care and want to know if there were any issues with the service or product.” However, if the customer cuts off communication, that’s a red flag signaling it’s time to implement a more assertive approach. “If diplomacy is important to your business on your aged debt, make sure the collection agency you have working on your behalf is in line with your business values,” adds DiMatteo, who is also president of the New England Collectors Association.

 

Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified CPA, tax advisor, and/or other financial professional.


Article provided by Inc. ©Inc.

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BuildingAWall_Body.jpgEvery business has to make certain purchases in order to continue providing the products or services around which it is built. Some of those purchases come with an added bonus: a valuable tax deduction that is often overlooked. The concept is known as depreciation, and you can claim it on many different kinds of equipment, vehicles, real estate, and other business property.

 

“Depreciation is legislated, and therefore legal, tax avoidance,” explains Eric Chen, associate professor of business administration at the University of Saint Joseph in West Hartford, Connecticut. The policy reasoning behind allowing a tax deduction for depreciation is to encourage businesses to invest in themselves, thus freeing up funds for hiring, purchasing more equipment, and expanding. “This is a public good. Jobs are created, and jobs mean taxes and productive workers who have money to spend. There’s economic value here,” he says.

 

Like any other business tax deduction, depreciation is governed by a set of rules; some are fairly straightforward, others more arcane, so it makes sense to work closely with your banker, accountant, and/or tax advisor when considering your options here. A simple rule of thumb is that if the asset will be consumed during the process of generating revenue, then it can be amortized against the sales it helps to generate, says Gene Osekowsky, coordinator at the Tennessee Small Business Development Center. “From a business point of view, depreciation is a non-cash expense transaction reducing the book value of the profit for tax purposes; it lowers your tax liability without using cash,” he explains.                                                                                               

                                                                                                    

Without depreciation
With depreciation
Sale
$100
Sale$100
Costs -40Costs -40
Pretax profit 60Depreciation-20
35% tax -21Pretax profit 40
Net income $3935% tax -14
Actual take-home$39Net income $25
Actual take-home$46


“If you focus on net income, it looks like a better scenario without depreciation—$39 versus $26. But the funny thing about depreciation is that you don’t pay it to anyone; that’s why it’s called a non-cash expense,” Chen explains. “When you add the $20 to the net income of $26 in the scenario with depreciation, your take-home is now $46, leaving you with an extra $7 you can use to support your business.”

 

Howard E. Hammer, a CPA with accounting and consulting firm Fiske & Company in Plantation, Florida, says it is important for business owners to be familiar with these depreciation basics:

  • Depreciation begins when the asset is actually “placed in service,” not when it is purchased.
  • It can be applied to tangible (assets with a physical form, such as equipment, buildings, inventory, etc.) and intangible (assets that are not physical in nature, such as patents, copyrights, business methodologies, etc.) property.
  • Assets with a useful life of five years or more can be depreciated; shorter periods apply to certain assets.
  • The Internal Revenue Code allows several different ways to calculate depreciation, subject to certain restrictions. Straight-line (divide the cost of the asset by its useful life in years and claim that amount each year) is the simplest and most common, but accelerated depreciation, which increases the deduction in the early years of an asset’s life, and bonus depreciation, an additional deduction that can only be taken in the first year of an asset’s life, are allowed for certain assets and leasehold improvements subject to dollar limitations.
  • When a capital asset is sold at a gain, previous depreciation taken is recaptured at ordinary income tax rates before capital gains treatment kicks in.

 

“For a business that is cash-strapped, depreciation can go a long way towards providing a boost to much-needed working capital,” Chen says. “For owners seeking to sell their business in the short term, it can provide a way to take cash out without affecting the income statement.”

 

Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified CPA, tax advisor, and/or other financial professional.


Article provided by Inc. ©Inc.

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