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Cash Management

36 Posts authored by: Inc.

Inc-Article-Logo.gifWhy Your Growth Depends on Cash Flow


Small businesses tend to ignore cash flow in favor of sales. Resist that temptation, and your odds of success go up dramatically.


It’s all too easy to think that selling more products and services month over month and year over year is the key to your company’s success. But in truth the actual amount of cash flowing in and out of your business is what actually determines its health and viability. Unfortunately, that simple fact is often overlooked by small-business owners.


“Small businesses tend to be weak on cash flow forecasting,” says Dewey Martin, CPA, CMA, and director of the School of Accounting at Husson University in Bangor, Maine.  “There’s an intense focus on sales and getting work done or products sold, but less so on promoting healthy cash flow.”


What’s often overlooked, he adds, is that “as businesses grow, both the balances of inventories on hand and the accounts receivable outstanding increase. Therefore the business looks profitable due to those measures of growth, but in the short term the owners are desperate for cash because their profits are tied up in inventory and receivables.” Many a business, in fact, has been forced to close due to its inability to meet its near-term obligations, even though its longer-term prospects look good.


Your company can take a number of steps to get a better handle on cash flow. These include constructing a cash flow budget, making invoicing and collections a priority, and arranging for a business line of credit to support your financing needs during cash flow droughts.


The budget you may not know about


Business owners need to look at not only how cash comes into a business in the form of revenue, but also the ways that cash goes out of the business in terms of expenses. That is where the rubber really meets the road in terms of how fast a business grows and whether it will survive.


The most useful tool is a cash flow budget. You can create this essential financial snapshot either by sitting down and looking at how your cash cycles in and out of your business (it works best if you can do this analysis for a period covering several years), or ask your accountant to help you create one in the form of a spreadsheet that you can then easily maintain going forward. That will help you understand how you receive money and how you spend it, which will help you become more intentional about your growth.


To keep your cash flow on an even keel, ensure that your invoicing and collections processes are a top priority, and maintain a bank line of credit to draw on when accounts receivables are high.


Decisions, decisions


Once you have a clear picture of your cash flow you can make better decisions on a host of issues that are crucial to your company’s growth. Without knowledge of how cash flows in and out of a business, both in terms of revenue and expenses, it’s impossible to know what you can really afford, or to make the best choice when contemplating an array of potential expenditures. 


“Many business owners are amazed at what they learn when they pay attention to how cash actually flows through their businesses,” says Martin. “Ongoing, regular expenses such as payroll tend not to be a problem, but what can become a major problem is capital expenditures and other large one-time expenses. When you plan those expenses with a better awareness of your cash flow, you can be more intentional about how you employ cash to grow your business.”


It’s much easier to budget for expenses that will foster long-term growth, such as new equipment and new hires, when you understand how the cash is coming into and out of your business. Be sure your analysis takes into account seasonal ebbs and flows, because cash flow is not always consistent, and for some companies the peaks and valleys can be extreme. Increasing sales quarter over quarter and year over year is important, but while you keep one eye on sales growth to power your company’s long-term success, keep the other on cash flow, to be sure you’re fine in the short term as well.





Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.


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©2015 Bank of America Corporation

Inc-Article-Logo.gifAs more players enter the payments space, it’s important that you keep pace with fast-changing customer preferences

In business, cash flow is king, and one solution to keeping the cash flowing is to make it as easy as possible for your customers to pay you. By adopting the new payment methods that are being heavily marketed to, and adopted by, your customers, you can shorten your accounts receivable cycle and ensure that you have the cash on hand to meet your business needs.


As the payments space gets more innovative, a variety of companies are competing for your payments business with technologies and services that offer substantial speed and convenience. These services can facilitate all sorts of transactions by employing devices that attach to mobile phones to take credit cards on the go, terminals that accept ApplePay and other emerging payment types, and readers that process checks on the spot.


“Businesses have more options than ever before when it comes to accepting payments,” says Patty Hines, a senior analyst with consulting firm Celent. “The question is how expensive are those options, and are they in the form that is the most convenient for the customers of that specific business?”

Know your customers
For small businesses the best payment methods depend both on what the company is comfortable with and what its customer base likes to use. That can vary substantially depending on the type of company, Hines notes. “A hip coffee shop downtown might need to take ApplePay, because its millennial customers expect that, while a craft store with customers who use checks might want a check reader that turns a check into an ACH payment,” she says.


For many businesses, accepting credit cards is a core capability: it allows customers to pay on the spot with either debit or credit cards, decreases the amount of currency that a business has to deal with, and also avoids the risk of a check bouncing. Extending this capability onto the store floor via mobile devices can be a great way to enhance the overall buying experience, because an employee can offer advice and then process the transaction instantly once the customer is ready to buy.


Other service businesses might find more success embedding payment options into invoices, so customers can immediately click on links and pay through credit cards or PayPal. “The key is to make the link as simple and easy to use as possible,” says Hines. “If you make customers jump through too many hoops to use your invoicing system, they will likely go back to mailing checks.”


Choosing the right partner
More competition in the payments space means more competition to win your business, which gives you the opportunity to find the best vendor to partner with on this critical aspect of your operations. Cost is important—not only the ongoing costs of using whatever technology and equipment the vendor provides, but also the cost of the equipment itself.


Consider how easily the vendor’s technology will cooperate with your bookkeeping system. Having to manually enter transactions can eat up staff time, so a system that integrates with your current accounting or ERP system is worth investigating. Some systems now extend to your e-commerce platform, making it simpler to send discount offers, create newsletters with click-through buying options, and the like. Once you have a partner, periodically see what advances are out there in the marketplace and get some sense of the costs, so that you can renegotiate your current deal or find a new vendor with better terms.



Bank of America, N.A. engages with Inc. to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc.. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.


Bank of America, N.A. Member FDIC.


©2015 Bank of America Corporation

Rising confidence is sparking a rise in equipment investment. Leasing may be one way to keep your company’s growth goals on track.


Leasing the equipment your business needs can be a strategy for managing your company’s cash flow and reserving its liquid assets for other areas of investment designed to hit your expansion and growth targets. To make the most of this resource, you need to understand current funding options and trends so that you can determine why and when leasing makes sense for your small business.


According to a forecast by the Equipment Leasing and Financing Association, “U.S. businesses, nonprofits and government agencies will spend nearly $1.5 trillion in capital goods or fixed business investment (including software) this year.” That figure represents an all-time high, and the majority of those assets will be acquired through financing, ELFA predicts. The association adds that this uptick in activity will reflect companies’ moves not only to replace older equipment, but to “aid in expansion” as “capacity utilization rates in some industries reach or surpass levels historically known to spur business investment.”


A more competitive cash flow strategy

William G. Sutton, CAE, ELFA’s President and CEO, notes that leasing can be particularly beneficial for you as a small business owner if your funding options for large purchases are limited. “The ability to make monthly payments, rather than large cash outlays up front, is a key benefit that can help small businesses maintain cash flow and greater certainty in budgeting,” he says. “One of many benefits is that small businesses can often acquire more and better equipment than they could have without financing—including the latest technology to remain competitive and meet their clients’ needs.”


In the short term, this approach can leave your cash reserves available to invest in research and development, marketing, and increased staffing or outsourcing that may be required to optimize your expansion and growth.


A secondary and longer-term advantage is that leasing can help you to strengthen your company’s credit position and establish the credit record that you’ll need to borrow for future growth. This can be particularly valuable if you’re a sole proprietor or owner of very small companies and are still in the process of building a credit history for the business that is independent of your personal credit record.


More trends to watch this year

ELFA is monitoring ten major equipment leasing trends for 2015. Visit ELFA’s Equipment Financing Advantage website to access an article and infographic about the top ten equipment acquisition trends of 2015 and its Ten Questions to Ask reference, which is designed to help map your company’s equipment leasing strategy.


Among its forecasts:


•    Improving market conditions will continue to increase credit supply and demand for equipment acquisitions.

•    Eyes will be on short-term interest rate increases.

•    Advances in the use of technology will drive innovative financing options.


In addition, the association is following economic "wild cards" that could have an impact on equipment acquisition decisions. On one hand, it is possible that global economic weakness could spark caution about business investment; on the other, “GDP growth from low oil prices, a potential surge in the housing sector and sufficient capacity utilization could have firms ramping up capital expenditures.”



Bank of America, N.A. engages with provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc. Consult your competent financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.


Financial-Plan-Thumb.gifFinancing needs evolve as a small business matures and each new phase of growth requires its own lending options. Building financing projections into the company’s plans for growth and laying the foundation now for future lending requirements can help ensure that your small business has all the resources it needs to pursue immediate and long-term opportunities.


Click here to download our guide "Building a Finance Plan Geared to Growth"

There are many important benefits and advantages available to businesses owned by women and/or minorities, but in order to qualify for them a business must become certified as a minority- or woman-owned enterprise. Connections, marketing assistance, and technical training are just some of the benefits that come with certification, says Susan Rittscher, president and CEO of the Center for Women & Enterprise, the New England affiliate of the Women’s Business Enterprise National Council, a leading certifier of women-owned businesses. (Others include the National Women Business Owners Corporation and the National Association of Women Business Owners.)


“First and foremost, if the diverse-owned business is interested in pursuing bids or contracts with a large corporation with a supplier diversity program, a state agency, or a federal agency, they must be certified in order to count toward supplier diversity goals,” Rittscher says. Another benefit of certification is connections to other certified businesses, which can be a powerful network of potential partners, clients, and advisors and mentors. “Certification is a strong marketing and selling tool for business owners when leveraged effectively,” she adds. Certified businesses may also have access to exclusive programs and services such as professional development workshops and networking and matchmaking events.


Tom Greco, vice president of, a free platform with a database of more than 610,000 companies, notes that there are many different ownership/diversity certifications that provide a competitive advantage to qualifying companies, and many businesses and government agencies are anxious to do business with them. “Indeed, 72 percent of buyers recently surveyed by CAPS, a research arm of the Institute for Supply Management, said they would be increasing their spending with diverse suppliers. Diverse businesses include Women-Owned Businesses and Minority-Owned Businesses as well as Veteran-Owned Businesses, Small Disadvantaged Businesses, HUBZone Businesses, and Service-Disabled Veteran Businesses,” he says.


While the process for obtaining various kinds of certification varies, Greco suggests that a business seeking any of the certifications mentioned above start by self-registering with the federal government’s System for Awards Management (SAM), since that is a requirement for most types of certification. Next, seek out one of the major certification organizations for your diversity group—such as WBENC for a women-owned business or the National Minority Supplier Development Council for a minority-owned firm. In most cases, minority-owned business certification falls under the purview of the individual states. Check out this useful list of certifying agencies by state to learn more.


It is important to note that in order to qualify for minority- or women-owned certification, the business must not only be owned by minorities or women but also controlled by them, says Dean dt ogilvie [ed. note: lack of capitalization is intentional and should be retained], the dean and a professor of business strategy at the Rochester Institute of Technology’s Saunders College of Business. “They have to be the ones making the decisions about strategy, business, and structure. They can’t just be figureheads to get the certification,” she warns. Owners must provide required documentation to prove ownership and control; they must have contributed capital and/or expertise to the business; they must be U.S. citizens (or, for some programs, resident aliens); and they must be independent in decision-making, Rittscher says.


Lisa Firestone is president and owner of Managed Care Advisors (MCA), a woman-owned employee benefits and disability management consulting and workers’ compensation case management firm based in Bethesda, Maryland, and she believes certifications and the set-asides to which they provide access play an important role in leveling the playing field for companies like hers. MCA is a certified minority business enterprise in Maryland and several other states and a WBENC-certified woman-owned business. In 2012 it also became certified as an Economically Disadvantaged Woman-Owned Small Business. “Honestly, before my business entered into government contracting, certifications and set-asides were unfamiliar concepts, and ones that made me a bit uncomfortable,” she says. “But what I have learned is that there really is no ‘special consideration,’ but just an opportunity to level the playing field and compete effectively. Certifications can get your business noticed, but they are not a direct conduit to a contract. You still have to get out there, compete for that business, and win it.”


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Growth potential and the need for financing go hand-in-hand. “Certain milestones or trigger points are common growth challenges that require additional financial support if the business is going to move to the next level,” says Ray Vargo, director of the Small Business Center at the University of Pittsburgh’s Institute for Entrepreneurial Excellence. Among those trigger points are the need for more staff, sales growth that exceeds existing production capacity, the need to purchase new equipment and/or arrange for additional facilities, and expansion into new markets, he says.


It is critically important for business owners to be proactive in creating a plan for future growth. “They must be both forward-thinking and flexible,” Vargo says. “Owners should always plan ahead and anticipate future milestones, but they should also regularly examine the current state of their business and try to identify new opportunities that weren't originally planned for and then determine the sort of financing needed to pursue such opportunities.”


Lindsey Gilkes, a management consultant at the Institute for Entrepreneurial Excellence, suggests conducting a brief checkup of your business at the end of every fiscal year. Here is a suggested roadmap for the process:

  • Identify your three major current concerns about your business.
  • Conduct a thorough financial review of the previous year’s performance with a focus on key ratios, such as your margins relative to the industry average, inventory turns, and cash flow (including receivables and payables turnover rates).
  • Compare your previous year’s actual performance with the numbers you had projected for it.
  • Set specific financial and other performance goals for the coming year.
  • Develop a plan with concrete strategies for achieving those goals.
  • Include due dates for each goal and contingency adjustments to be made during the year for goals that are not being met.
  • Designate who in your organization will be primarily responsible for achieving each goal.


Examining your budget and your current balance sheet in conjunction with your action plan will help you identify where you might need financing to complete items on your action list and what type of financing is likely to be most effective and accessible, Gilkes says.


Financing plans with accurate projections are not difficult to create, says Rob Dennison, a national partner in Irvine, California-based Hardesty LLC, an executive services firm focused on the office of the CFO. The challenge is executing the plan to achieve the desired results. “It’s imperative to have a flexible plan that can be adjusted and allows for modeling of unexpected events.”


Defining needs and assigning associated weighting to their importance is an integral part of this process, and some key considerations include:

  • Expansion versus risk mitigation. Potential revenue and profit gains from expanding into new areas or market segments must be weighed against the costs of mitigation measures required for new risk factors, i.e., currency fluctuations or political instability in new overseas markets.
  • Securing the best terms and the impact on timing. It makes sense to secure the best financing terms possible, but having the financing already in place may be a more important consideration for expansion minded businesses so you can move quickly when opportunities arise.
  • Business stage-to-financial stage ratio. Different types of debt and equity financing are generally more available to businesses at different stages in their development. Make sure your financing efforts align with your current business stage to improve your chances of success.
  • Capital allocation plan. Lenders will want to know what you plan to do with the money. Have a detailed plan ready that ties the funds being requested to specific business goals (purchase of new equipment, expansion of production lines, etc.).
  • External issues and “unknown unknowns.”


“Knowing the most effective way to allocate your funds is of primary importance to any business,” say Evan Charles, co-founder of Boston-based Launch Academy, a provider of coding and web development training. “Misjudgment here can result in wasted money and time.” Start with long-term and associated short-term business goals, make sure the contemplated spend aligns with those goals, and confirm you are taking the correct strategic next step rather than skipping ahead, he advises. “Be protective of your assets as if you have two personalities: One is an entrepreneur—that’s easy—and the other is a tight-fisted investor. If you are not financially savvy, seek help. The cost will far outweigh the spend.” Dennison adds that the goal should be to create a plan that anticipates growth and puts financing in play before it’s needed. “Anticipation versus reaction should be the theme as it relates to financing,” he says.


For more information on different approaches to building a finance plan geared for growth and gauging the health of your business, check out:


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Content created exclusively for Bank of America.




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"


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. 

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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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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




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.


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.


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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..

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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.”



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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 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 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 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




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