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Cash Management

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The U.S. is in one of the longest periods of expansion ever, as June marked the 10-year anniversary of our current economic expansion. Yet there are signs we are heading towards a recession within the next year:

 

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  • The Washington Post reported earlier this year that over a majority ofeconomists say a recession is bound to occur in the next 12 months.
  • Probably the most accurate, relevant (and geeky) sign is something called the “yield curve.” The yield curve looks at the gap between short term and long-range Treasury bill rates, and recently “showed the chance of a recession at 23.6% for the 12 months through next January,” Fortune reported, “the highest since the reading for the year through July 2008.”
  • And finally, we know a recession is coming because that is the nature of economic cycles.

 

So yes, there are troubling signs of recession brewing, even with (and maybe even because of) the gangbusters economy we are in now.

 

Knowing this begs the question: How can your business prepare for a recession that is on its way, probably sooner than later? Here are a few helpful tips to help you start preparing now:

 

Pay off debts

 

Needless to say, money dries up during a recession. Clients are tougher to get, invoices take longer to get paid, and so on. Given that, right now is the best time to start paying off debt. During a recession, not only will having less debt make things easier, but also having access to extra capital will help during penny-pinching times.

 

Paying off debt is not difficult, but it does require discipline:

 

    • Pay off high interest debts first.
    • Don’t worry about paying a debt off in full all at once. Chunk it down.
    • It also helps to get the lowest balances paid off.
    • Speak with some of your creditors and see if they would be willing to take a lesser sum for a payment in full right now.

 

While this might seem counterintuitive, another good strategy once your debts are paid down is to apply for more credit cards with low interest rates. But don’t use them. Since access to capital is more challenging during a recession, having new, low-interest credit cards may come in handy down the road.

 

                   RELATED CONTENT:

 

Create and build your emergency fund

 

If you don’t have an emergency fund, today is the day to get started! An emergency fund provides extra capital and a cushion when cash flow becomes an issue. Aim for an amount that equates to a few months’ revenue. If this is too much of a stretch, try starting small. The thing is, that extra money will provide relief and peace of mind when you most need it.

 

                   RELATED CONTENT: Why Planning for Uncertainty is a Must for Business Owners by Steve Strauss

 

Grow your customer base

 

Maintaining customers during a recession can be challenging because, unless you are “the low-cost leader,” customers inevitably shop for less expensive goods and services. This is why it is important to continue to grow your clientele today. A few ideas:

 

    • Start a loyalty program- show your customers you truly appreciate their patronage.
    • Market your business, and then market it some more. Get your name out there and bring in new customers. Who knows? They can be your next loyal customer, and they might even keep you afloat during hard times.

 

Cut your overhead

 

I know, I know. I just told you to spend more on marketing, and now I’m telling you to cut costs. What gives?

 

The smart thing is to spend money in places where it helps you grow and cut back in other places where possible. Do a comprehensive analysis of your costs, overhead, and cash flow. What is working, and what isn’t? Where you can cut back, do so.

 

RELATED CONTENT:  Small Business Cash Flow Management Made Easy

 

A recession iscoming. How your business prepares now will help future you.

 

About Steve Strauss

 

Steve Strauss Headshot New.pngSteven 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 also listen to his weekly podcast, Small Business SuccessSteven D. Strauss

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. 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.  ©2019 Bank of America Corporation

Cash flow best practices

When it comes to cash flow, the faster you collect payments, the better. Money owed to your company is money not available. So it’s a good idea to assess and refine your accounting procedures to be as efficient and consistent as possible.


As you strive to manage receivables more efficiently and consistently, taking the right approach can help you maintain and even nurture your customer relationships.

Invoice frequently and accurately.

Here are some ways you can speed payment:

Invoice immediately. Don’t wait until the end of the month or some arbitrary date. Send the bill as soon as the job, service or delivery is done.
Send recurring invoices more frequently. If you’re billing in hourly allotments, do it twice or three times a month instead of just once so that money is always coming in.

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Make it easy to pay.
Your invoices should present all the elements necessary for fast payment — including a due date, details of goods or services purchased, order number and payment options (such as credit, debit and mobile wallet).

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Review unpaid invoices regularly.
The longer an invoice is out, the less chance it will get paid.

Set payment terms

Clearly communicate and enforce your payment terms:

Establish a “net 30” schedule.
This requires that customers pay within 30 days of the date of the invoice, which can add stability to your account management.

Offer discounts.
Reward those who pay early, such as a 2% discount when paid within 10 days. This might cost a bit up front, but may provide benefits over time with improved cash flow, easier collections and customer satisfaction.

Implement penalties.
Be clear with customers in advance that there may be fees for late payment. But remain open to negotiating a late fee waiver when warranted.

Collect partial payment up front. calendar-icon

For bigger or long-term projects, break up payments into smaller amounts along the way. Two often-used strategies are collecting half upfront and half upon completion, or dividing into thirds so you get payment upfront, midway and at the end of the project.

Be proactive.

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Make a schedule.
Set aside a few hours a week to send out invoices and follow up on outstanding invoices.

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Stay organized.
Maintain an easy-to-reference record of customer purchases, contacts and communications.

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Give a key employee access.
A staffer helping with receivables will need access to customer financial records.

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Engage a bookkeeper.
Even on a part-time basis, a person with accounting knowledge can be indispensable.

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Use accounts receivable management software.
Streamline customer correspondence in one place — including history, past actions and searchability.

Plan ahead to make accounts receivable a top priority. Getting automatic cash flow projections through Business Advantage 360 can help.

Enforce your payment policy.

When a payment becomes past due, take action. The longer you wait, the less likely it is that you’ll get paid.

Be diligent.
The day an invoice becomes past due, be sure to follow up. Unpaid invoices should demand your immediate attention.

Talk person-to-person.
Emails and letters are easy to overlook or ignore. Calling your customers is a more immediate and personal approach.

Collect past-due payments.

Here are some tactful ways to approach the sensitive issue of delinquent customer payments.

Contact the customer first.
Reaching out before taking any legal action — a call, letter or email — might be all it takes. This is the easiest, most affordable way to resolve the debt.

Negotiate through mediation.
Legally, this may be the least stressful and costly way for you and your customer to reach a settlement.

Engage in arbitration.
A court-appointed representative will hear both sides and resolve the dispute.

Use a debt-collection agency or lawyer.
If the bill is large enough to offset the cost, either of these might be the most viable option.

Write off an uncollected invoice.
Come tax time, you can claim it as a bad debt.

Receivables management solutions

In addition to cash or check payments, today there are plenty of technologies, tools and resources to manage receivables more effectively. Consider contacting a small business specialist to discuss what would work best for your business.

Electronic payments

Automated Clearing House (ACH) and Electronic Funds Transfer (EFT) services ensure you get paid faster by drawing payments from customers’ bank accounts on specific dates that both parties agree on. Advantages include:

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Convenience.
Electronic payments only need to be authorized once and are then automatically deposited into your designated bank account going forward.

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Increased security.
Automatic and electronic debits are more secure and minimize human risk, mishandling and error.

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Lower costs.
ACH and EFT services deliver payments at a fraction of the cost of paper check processing.

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Faster processing.
Turn a customer check into an EFT. Take relevant information from their check and process a one-time EFT from their bank to yours, while notifying your customer.

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Credit cards.
Because credit cards are an attractive payment method for many customers, you should accept as many types of cards as possible. They may also substantially reduce the risk of non-payment since credit card providers are required to pursue delinquent accounts. Plus, the benefits — such as increased spending, customer convenience and trust — far outweigh the minimal processing fees.

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Merchant services.
A turnkey point-of-sale system makes processing payments — including electronic checks, debit cards, credit cards, gift cards and more — easier than ever. Typically, funds are available by the next business day. Find out what Bank of America Merchant Services can do for your business.

Electronic receipts

Paper receipts are fast becoming obsolete. The preferred method you should consider for offering your customers receipts is through email. Importantly, email receipts are environmentally friendly, low-cost, easier for customer recordkeeping and minimize fraud related to purchasing and returns. Receipts may also be stored in secure online clouds where they are easily accessible.

Online remote payments

Make payments as easy as possible by responding to your customers’ preferences: Whether through credit card, debit card or direct debit from a bank account, accepting online payments are essential for customer purchases by phone or through any digital device.

Get started with a Bank of America Merchant Services eCommerce Payment Gateway.

Online remote deposits

Similar to mobile check deposits for very small businesses, online remote deposit is designed for businesses frequently processing multiple checks directly from their office. Using a computer and a bank-issued scanner and software, check images are transmitted directly to a bank account, expediting the availability of funds.

Spend less time depositing checks with
Bank of America Small Business Remote Deposit Online.

ATM business deposit cards

screen-iconA business deposit card is a handy, secure tool that enables you to designate one or more employees to make ATM deposits to your business account, but not the ability to withdraw funds or access private account information.

Learn more about business deposit cards.

Cash automation and optimization

For greater integration of receivables into your accounting system, consider using an e-invoicing service. This would allow you to automate your cash-handling process, and includes electronic invoicing, check and invoice scanning, supplier communications and receiving e-payments.

 

An e-invoicing portal also would enable you to check the status of invoices in real time; make faster decisions; enhance forecasting; increase operational opportunities, efficiencies and security; provide quicker access to receivables; and boost visibility across the process to make better, more informed decisions.

 

Handle payments, invoicing and reporting with Viewpost®.

Business pro tip:
Paperless billing is a faster,
more cost-effective way
to process checks

 

Check out this Small Business Bookkeeping, Accounting, & Tax Guide from FitSmallBusiness.com.

Bank of America, N.A. provides informational materials for your discussion or review purposes only. 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. ©2019 Bank of America Corporation

 

 

We are well into the new year and, in all likelihood, you started off the year planning to reach certain financial goals and revenue targets. Before the year gets too far along it’s good to take stock of whether you are heading in the right direction regarding the revenue and cash flow goals you set for your business back in January.

 

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The funny thing is, many small business owners won’t really know the answer. Oh sure, they have a general idea if they are having a good or bad year, but a solid understanding, based on sales, expenses, and especially cash flow? Maybe not so much

 

      • Check out our infographic on creating a balanced cash flow cycle

 

Cash management is one of those things that small business owners know that they should know, but many do not. And that actually is quite understandable as the vast majority of entrepreneurs did not go to business school and financials, cash management, profit and loss statements are not something that they have managed before. The problem is, not knowing where you really stand financially can undermine your business.

 

 

Cash flow is the lifeblood of any business, and you cannot really have a good understanding of whether you are meeting your goals for the year or not if you do not have a handle on these sorts of financial snapshots. It is not just a matter of checking your bank balance either, that’s for sure.

 

So how do you know if you are on track to meet your revenue and financial goals for the year? How is your cash flow situation looking? If you are not sure, I have good news for you.

 

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Our friends at Bank of America recently launched a new product called Business Advantage 360.

 

Business Advantage 360 is a digital dashboard available in Online Banking and Mobile Banking, designed to make it easy for small business owners to manage the various financial aspects of their business. Available to any Bank of America client with a business account, Business Advantage 360 provides a view of business cash flow and access to real-time expertise and guidance – all in one simple tool.

 

Specifically, Business Advantage 360

 

  • Graphically displays cash flow projections based on scheduled transactions
  • Integrates account information making it easy to keep track of credits and debits
  • Manually adjusts your projections with additional data like new sales
  • Lets you set cashflow thresholds, displays them graphically and  alertsyou  with enough time to make proactive adjustments
  • Helps you to quickly access experienced small business bankers to help you optimize how you use Business Advantage 360

 

Here’s a good video that can show you how Business Advantage 360 can help your business. And here are some tips for avoiding a cash flow crunch.

 

Let me add one last thing. If you feel like you need a little extra help with getting started, why not pick up a book? Cash Flow for Dummies by John A. Tracy will give you a nice overview of various accounting topics and some insight into how cash flow fits into the big picture.

 

So, are you meeting your revenue goals for the year? If you can pull out your smartphone and take a quick look at your cash flow at a moment's notice, you will be one step ahead of the game.

 

Next: Check out of Cash Flow Management Resource Center.

 

About Steve Strauss

 

Steve Strauss Headshot New.pngSteven 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 also listen to his weekly podcast, Small Business SuccessSteven D. Strauss

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. 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.  ©2019 Bank of America Corporation

 

 

Bank of America, N.A. Member FDIC. Equal Housing Lender House

 

© Copyright 2019 Bank of America Corporation.

 

Bank of America is not responsible for user posts and other user content appearing on this website and does not endorse or guarantee the perspectives, the advice, the users, the businesses, or the products or services sold by any users or businesses that appear on this website. Bank of America, N.A. is providing these third-party websites and/or other sources only as a convenience, and does not monitor or maintain the information available on the external websites mentioned, nor represent or guarantee that such websites are accurate or complete, and they should not be relied upon as such. Bank of America provides informational reading materials for your discussion or review purposes only. Neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Q: Hi Steve – From reading your articles, I see you used to be a bankruptcy attorney and I would like to tap that expertise. For various reasons, my business has accumulated a lot of debt. But the thing is, I don’t want to file bankruptcy. Any suggestions on how to get out from under, aside from BK?

 

A: Too much debt can definitely make life and business very difficult. But, notice I said, “too much debt.” I say that because another thing I know is that not all debt is bad debt. If you took on some debt to fund a profitable expansion, for instance, that is good debt. If, on the other hand, the expansion went south, and you charged a week-long trip to Hawaii, that, needless to say, is bad debt.

 

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All of which begs the question: What do you do when you have too much bad debt? Essentially you have three options:

 

1. Cut a deal with the creditor: Of course, you would like to pay your creditors in full, but sometimes that is not possible. Rather than just walk away from the debt it is usually best to try and work out a payment arrangement with the creditor. Maybe they can give you more time to pay, lower your payments or even cut the principle.

 

You don’t know until you ask and, especially if you are behind in your payments, you may find the creditor is more amenable to a negotiated settlement than you may realize.

 

2. Cut a deal with the collection agency: If the debt is so overdue that it has been sold to a collection agency, you actually are in better shape vis-à-vis a settlement. Why? Because the collection agency bought the debt at a steep discount, maybe 10 or 20 cents on the dollar. As such, anything over that amount is profit. That is good news for you insofar as negotiating a deal, but yes, bad news for your credit rating (that’s a different article.)

 

What you can do at this point is call the collection agency and look to strike a bargain. Offer them, say, 40 cents on the dollar for the debt. They may say no, tell you are crazy, etc. But if you can get together a lump sum payment of, say, 50 percent of the total or so, and offer that, you just may find they are willing to listen.

 

But in order to take advantage of this method you have to 1) have a lump sum payment ready, and 2) be willing to suffer the consequences on your credit rating.

 

If they do agree to terms, make sure you get all relevant terms in writing, especially that they will agree to consider the debt paid in full and will report it to the credit agencies as such.

 

3. File bankruptcy: Yes, I understand that no one wants to file bankruptcy, but I would be remiss if I did not go over this option.

 

Depending upon your goals and your desired outcome, you could file a Chapter 7, 11 or 13 bankruptcy. A Chapter 7 wipes out most debt but is also called a “liquidation” for a reason – you will likely have to close the doors to your shop and the bankruptcy trustee will liquidate your assets to pay your creditors what they’re able. A Chapter 11 or 13 filing are types of reorganizations whereby you repay some of what you owe over time.

 

The good news about an 11 or 13 is you get to keep the business open. And from a personal perspective, if you are really so deep in debt, even a Chapter 7 can be a relief since at least it ends the stress associated with managing a lot of bad debt.

 

No matter which choice you make, it will take you a few years to get a decent credit rating again. In reality, that is just the cost of doing business sometimes.

 

Learn how to define personal bankruptcy from Better Money Habits.

 

Struggling to keep up with your payments? When your financial situation calls for it, seeking the services of a good credit counseling agency can help you get back on track.
                   
Credit counseling is a service offered to people with excessive debts as a possible alternative to bankruptcy. A credit counselor will work one-on-one with you to provide financial education, credit analysis and a working budget. For most who speak with a counselor and are serious about working their way out of debt, counseling has proven to be a successful alternative.
   
We have put together a list of external websites that may be a good starting point. These non-affiliated sites offer a wide range of counseling, assistance and recommendations for managing credit and reducing debt.
       
Non-Profit Credit Counseling & AdvocacyDescription
Association of Independent Consumer Credit Counseling Agencies layerA member-supported national association representing non-profit credit counseling companies that provide consumer credit counseling, debt management, and financial education services
National Foundation for Credit Counseling layerPromotes the national agenda for financially responsible behavior and builds capacity for its members to deliver the highest quality financial education and counseling services
Government Financial & Debt EducationDescription
Federal Trade Commission layerA U.S. government institution that protects America's consumers by providing help for choosing a credit counselor
Consumer Financial Protection Bureau layerA U.S. government agency that protects America's consumers in the market for consumer financial products and services
Financial Literacy and Education Committee layerThe U.S. government's website dedicated to teaching all Americans the basics about financial education
National Financial Education Network Database for State and Local Governments layerA national database that brings together representatives from different areas and levels of government across the nation to advance financial education efforts

 

 

 

About Steve Strauss

 

Steve Strauss Headshot New.pngSteven 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 also listen to his weekly podcast, Small Business SuccessSteven D. Strauss
   
  
Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. 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.  ©2019 Bank of America Corporation

Time Magazine named TruTouch one of 2006’s best inventions. The device, which tests a drivers’ alcohol levels with much faster technology than breathalyzers, won a government grant that allowed the company to move into further development.

 

From the initial investment, TruTouch’s developers were catapulted into a second round of funding in the form of a $438,000 grant administered by the United States Army Medical Research and Materiel Command.

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The story of TruTouch is two-fold: First, yes, there actually is the potential to find “free money” when you’re starting a small business. And second . . .

 

It’s really, really tough to get.

 

Federal grant money is administered by individual agencies and each has a very specific set of requirements. For example, The U.S. Department of Agriculture awards a grant of up to $75,000 to “expand, or assist in the improvement and expansion of, domestic farmers markets, roadside stands, and community-supported agriculture programs.”

 

When researching Federal grants,the best place to go is the United States government’s Small Business Innovation Research (SBIR) and its Small Business Technology Transfer (STTR) programs. SBIR/STTR offers grants to companies that undertake scientific R&D projects that have a high likelihood of having commercial applications.

 

But not every business is in the R&D market. Here then are some other ideas for the rest of us when looking for sources of startup funding for small businesses:

 

State and local governments: State and local governments want to attract new business to their areas and many of them have created a variety of incentive, economic, and loan programs and funds intended to do just that.

 

For example, Portland, Ore., wanted to attract more startups, so prospective investors worked with the Portland Development Commission to create the Portland Seed Fund. Begun with a $500,000 infusion from the general fund, the new entity was dubbed Bridge City Ventures. Bridge City Ventures then approached other stakeholders in the city and eventually created a seed startup fund worth over $2 million.

 

Another great program of this kind is in New York City where NYC Department of Small Business Services is accepting applications for grants up to $90,000 to help offset rising real estate costs for small businesses. The program has an overall $1.8 million in grant funding.

 

It’s well worth researching to see if there are similar programs in your area.

 

Business plan competitions: For an exciting twist, locales have also begun creating business plan competitions where companies pitch their business idea in a “Shark Tank” environment. The winner gets some seed money and in-kind contributions from local companies. Beyond the funding, competitions can drive word-of-mouth for a small company and provide a network of seasoned business owners to support them in their earliest stages.

 

Partners/Investors/Angels: No, the money you receive from bringing in a partner or investor certainly is not “free,” except to the extent that it is not money that originates out of your own pocket. If you’re awarded such funding, you can bet that there will be plenty of strings attached.

 

The bottom line: While federal funding may be unattainable for most small businesses, there is money to be found. Paying particular attention to local sources may help. Indeed, lots of city or statewide groups have a vested interest in finding and developing viable small businesses, especially ones that can contribute to their economies and help create jobs. Targeting programs like that can help you find monetary success and help you become a thriving part of a local community.

 

Learn more about financing for your business by visiting our Credit and Lending Resource Center.

 

About Steve Strauss

 

Steve Strauss Headshot New.png

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 also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. 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.  ©2019 Bank of America Corporation

I have a pal whose side hustle crashed.

 

He decided to become a driver for Lyft. Problem was, his car was 10-years old and that won’t work for companies like Lyft and Uber. Undeterred, he spoke with his contact and Lyft offered to rent a car to him. While the almost $800 a month fee seemed exorbitant, my pal learned that if he got enough rides, that fee would drop significantly. Excited,  he got rid of his regular car and started driving for Lyft.

 

And then the wheels fell off, almost literally.

 

He never got enough rides, so his overhead was crazy and he couldn’t make a profit. Then he got in an accident and the car was undrivable. So, in the blink of an eye, he had no car (having sold his car), had no income, and owed the insurance company $1,000 for the deductible.

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While the freedom that comes with being self-employed can be intoxicating, it can also be debilitating if you aren’t financially smart about it.

 

Indeed, there is a right way and a wrong way to do go about creating a side hustle. Here are a few smart financial tips to help you avoid some of the common financial traps that can befall the so-called gig worker:

 

1. Make sure there is a market for your gig. Before you get carried away by your big idea, and before you invest a lot of time and money into the project, you should first do a bit of research. Be sure that there is a need for what you are going to sell.

 

This might mean researching the niche and making sure that there are needs to be filled or doing the math to ensure that it will give you the extra cash you require. Having all your bases covered ahead of time will mitigate stress, thus allowing your creativity and passion to thrive. You don’t want to make any shortsighted decisions.

 

Find out the top 6 platforms to find your next gig.

 

2. Don’t quit your day job. A side hustle is meant to be exactly that – a job you have on the side (at least for now.) Whether your side hustle is solely for extra cash or is an entrepreneurial passion project, you will still need a primary income to keep you afloat. Remember the age-old wisdom: it takes money to make money. Do not put yourself in a worse financial situation by quitting. Patience is a virtue.

 

Read Carol Roth’s 4 tips for starting a successful side business.

 

3. Keep your overhead low. As we saw above, it can be easy to be carried away by the promise of your new side business. But you need to make sure you are not spending too much on it – your side business is something that should make you money, not cost you money. Sure, investing a bit of your own money may be necessary to start  but until you are (mostly) certain it is a viable option, keep your overhead low.

 

4. Separate your business expenses and personal expenses. When you’re first getting started with new business ventures, mixing your business and personal expenses is an easy trap to fall into. This is something you need to take measured steps to avoid.

 

You need to separate business and personal finances and be able to keep track of your business expenses in an easy, organized fashion. The best way to do this is to simply open a separate bank account for business expenses. Running a program like QuickBooks® Onlinealso makes sense.

 

Learn more about business versus personal credit cards.

 

5. Invest your side hustle income. If you aren’t already investing, your newfound side hustle earnings are a great place to start. If growing your finances is your main goal, then investing could be one of your greatest tools. While you will not see the money right away, you will see it grow in the long run. This could prove very useful in emergencies, or even for launching your business full-time.

 

Watch a video about a gig worker’s guide to retirement planning.

 

A lot of people are in the side hustle game right now, but only a handful of them are doing it right. Set yourself up for success and make sure that you are one of the few. Happy hustling!

 

Do you have a side hustle? Tell us about it in the comments below.

 

 

About Steve Strauss

 

Steve Strauss Headshot New.png

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 also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. 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.  ©2018 Bank of America Corporation

Money is the lifeblood of your business and the measure of its success. What’s the best way to keep it flowing? Here are eight financial resolutions for your business to consider:

 

Resolution 1: “I will start accepting mobile and digital payments.”

 

Accepting digital payments makes your business more efficient. Plus, customers like the convenience. In 2018, 46 percentof small businesses accepted digital payments, up from 36 percentin 2017, according to Bank of America Merchant Services’ 2018 Small Business Payments Spotlight. Almost60 percentexpect customers’ use of digital payments to increase in the next five years.

 

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Learn how to accept payments in-store, online and virtually anywhere.

 

Resolution 2: “I will protect my business’s financial data.”

 

Cybercrime is on the rise, putting both your business’s and your customers’ financial data at risk. Among small businesses that experienced a data breach in the past year, Bank of AmericaMerchant Services reports, almost 40 percentsuffered financial losses of more than $50,000. Protect your business by updating security software and regularly training employees in the importance of cybersecurity.

 

Get tips from the National Cybersecurity Society to protect your business.

 

Resolution 3: “I will keep an eye on my cash flow.”

 

You need to review your cash flow at least once a month, or you could find yourself in an unexpected cash crunch. Use an accounting app that makes cash flow monitoring super simple (for example, QuickBooks® has cash flow monitoring tools built in).

 

Learn how you can get automatic cash flow projections with Business Advantage 360

 

Resolution 4: “I will plan ahead for financing needs.”

 

Many experts predict a recession within the next two years. The time to get financing for your business is when you don’tneed it—so even if you don’t need money today, research your options now. Create sales and financial forecasts to estimate your financial needs in the next one, three or five years. Then investigate options you can have at the ready, such as a business line of credit or a new business credit cardthat offers low interest rates and rewards.

 

Schedule an appointment with a Bank of America Small Business Banker.

 

Resolution 5: “I will make the most of my accountant.”

 

Your accountant is more than just a bookkeeper or tax preparer. He or she should be a true partner in your business, providing insights that make your company more successful. Set up regular meetings with your accountant to assess issues such as how to save on your taxes, the best ways to finance equipment purchases, if you can afford to add employees, how to plan short-term and long-term goals, etc.

 

Get help determining whether a bookkeeper of accountant is best for your small business.

 

Resolution 6: “I will charge what I’m worth.”

 

It’s a new year—a good time to review prices. Examine your costs and profit margins for the past year. How do they compare to industry benchmarks? When was the last time you raised prices? Owners of service businesses are often reluctant to charge what their services are really worth, fearing customers will jump ship. However, in most cases, clients and customers are looking for value, not rock-bottom prices, which may imply less-than-stellar services.

 

Read Steve Strauss’ article about 3 Ways to Increase Your Profits

 

Resolution 7: “I will build value in my business.”

 

Are you thinking about selling your business in the foreseeable future? The number of businesses changing hands is soaring, BizBuySellreports. Whether or not selling your business is on the horizon, building its value is always a good idea. Start by looking at your business as an outsider would. Review its financials and take stock of assets and liabilities. Your accountant can help you estimate your business’s value and discuss ways to increase it.

 

Check out Carol Roth’s 3-part series on how to get your business ready for a sale.

 

Resolution 8: “I will save for retirement.”

 

If you’re putting all your money back into your business, what happens when it’s time to retire? Make 2019 the year you start saving for your future. SIMPLE IRA, SEP IRA and 401(k) plans may be available to your business. (Bonus: offering employees a retirement plan helps attract and retain workers.) Visit the IRS website to learn more about retirement plans for small businessesand consult a personal financial planner about the best option for you.

 

Get retirement tips from “The Heartbeat of Main Street” podcast

 

QuickBooks is a registered trademark of Intuit Inc. Used under license.

 

About Rieva Lesonsky

 

Rieva Lesonsky Headshot.png

Rieva Lesonsky is CEO and Co-founder of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog SmallBizDaily.com. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America’s entrepreneurs for more than 30 years. Before co-founding GrowBiz Media, Lesonsky was the long-time Editorial Director of Entrepreneur Magazine. Lesonsky has appeared on hundreds of radio shows and numerous local and national television programs, including the Today Show, Good Morning America, CNN, The Martha Stewart Show and Oprah.

 

Lesonsky regularly writes about small business for numerous websites and for corporations targeting entrepreneurs. Many organizations have recognized Lesonsky for her tireless devotion to helping entrepreneurs. She served on the Small Business Administration’s National Advisory Council for six years, was honored by the SBA as a Small Business Media Advocate and a Woman in Business Advocate, and received the prestigious Lou Campanelli award from SCORE. She is a long-time member of the Business Journalists Hall of Fame.

 

Web: www.growbizmedia.com or Twitter: @Rieva

You can read more articles from Rieva Lesonsky by clicking here

 

Bank of America, N.A. engages with Rieva Lesonsky to provide informational materials for your discussion or review purposes only. Rieva Lesonsky is a registered trademark, used pursuant to license. The third parties within articles are used under license from Rieva Lesonsky. 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. ©2018 Bank of America Corporation

Before 2018 ends, it is good idea to complete an overview of your business achievements. The best analysis of progress is to scrutinize your accounting records. As Kevin O’Leary from TV’s Shark Tank says, “Always know your numbers!”

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Your analysis should be done before year end so you can understand what you need to improve, avoid or correct in the new year.

 

There are several accounting challenges every business faces regardless of size. Here are some ideas to overcome accounting challenges before 2019 starts.'

 

Improving Cash Flow

 

It’s important to calculate how quickly you collect cash. In other words, understand your cash and billing cycle. I’ve seen small businesses struggle with cash collections because their cycle wasn’t properly implemented and monitored. For example, there wasn’t a repeatable process to send customer invoices in a timely manner. 

 

Sometimes, the issues are simple to fix, such as verifying billing addresses before sending invoices. Is there a policy for sending invoices immediately after services have been rendered or a product shipped?

 

Understanding this process will increase the likelihood of getting paid on time. Ensuring clear communication between you and your customers on the terms of your services makes the process easier for everyone to understand.

 

You can also consider alternative modes of payment. Do not rely on cash only as this method of payment can cause delays in receiving payments from your clients. Other options for receiving payments can include credit cards or allowing online invoicing for customers.

 

 

Shed Bad Clients

 

Bad clients can be an accounting challenge. By this, I mean clients who either don’t pay on time or don’t pay at all. It’s pretty obvious such customers are bad for business and can drain your time and energy.

 

Also, delinquent clients damage your accounting ratios, which can impact your business credit. For example, bad clients increase your allowance for doubtful accounts balance and the corresponding bad debt expense on the income statement. Banks and other lenders refer to these accounts to decide whether you’re effectively managing cash and whether you have too much bad debt on your books. Implementing a policy for bad customers will improve how you deal with bad debt while keeping your focus on servicing customers who pay on time.

 

    • Speeding up your receivables by a week or even a few days can have a long-lasting impact on your cash flow. Find out helpful tips in our Managing Receivables guide.

 

Check Accounting Ratios

 

Most businesses fail to perform an analysis of their accounting ratios and as a result can be blindsided by poor performance. Prepare ratios for Inventory Turnover, Debt-to-Equity Ratio, Working Capital, Current Ratio and Accounts Receivable Turnover. The ratios will tell you the financial health of your business and the areas you should focus on in the new year. Like seeing a doctor for an annual physical, you can identify potential problems before they become too large to overcome. Ask your CPA to help with preparing your accounting ratios.     

 

    • Want to know more about working capital and why it’s important? Click here.

 

Call your CPA

 

Schedule a meeting with your Certified Public Accountant before the end of the year to discuss your business plans for 2019. With recent tax law changes, now is the time to determine whether making year-end purchases, deferring revenue and paying state taxes have tax advantages or consequences.

 

 

About Ebong Eka

 

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Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.

 

Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.

 

Ebong is also the founder of The $250 Tax Pro, which provides tax preparation and consulting services in the Washington, DC area.

 

Web: www.ebongeka.com or Twitter: @EbongEka.

You can read more articles from Ebong Eka by clicking here

 

Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. 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.  ©2018 Bank of America Corporation

Is the U.S. headed for another recession? Two-thirds of America’s business economists project a downturn by the end of 2020, according to a survey reported by Bloomberg—and 10 percent believe it will start next year.

 

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While the economy currently looks robust, it’s always smart to be prepared for a downturn. Here are 10 steps you can take to protect your business from bad times.

 

1. Assess your risk. Does your industry traditionally get hit hard by economic downturns? If so, does it happen right away, or will it take a while to feel the effects? You want to know how much risk you face and how quickly it could happen.

 

2. Decide what products or services to cut first. If certain products or services are likely to suffer big declines during a recession, consider dialing back on those now so you don’t get stuck with excess inventory or staff if a downturn hits. Cut back on your personal expenses to build up a financial cushion.

 

3. Diversify your client base. If your business is heavily reliant on one or two big customers, losing them in a recession could be devastating. While continuing to service the big clients, solicit more work from smaller ones, and reach out to new clients. You can also diversify by looking for low-cost ways to expand to new markets, either geographic or demographic. For example, selling internationally can mitigate risk if the U.S. is especially hard-hit by a recession.

 

4. Create alternative sources of income for your business.

  • If you currently sell in a retail store, can you sell on your website as well?
  • Can you develop affiliate relationships with businesses or individuals?
  • Can you sell your products or services at local events?
  • If you own a service business, are there related products you can sell?
  • If you sell products, are there related services you can add?

 

     RELATED CONTENT:  The Magic of Creating Multiple Profit Centers

 

5. Focus on increasing profits. Ask yourself:

  • How can you cut costs now—and in the upcoming months?
  • Can you find cheaper sources of goods? Online marketplaces such as Alibaba.com can connect you with low-cost suppliers worldwide.
  • Can you renegotiate your rent?
  • Can you negotiate better terms from vendors?
  • Can you renegotiate credit terms with your lenders?

 

     Now is the time to lock in any good deals you find.

 

6. Pay close attention to cash flow. Monitor your cash flow statement at least weekly. Get proactive about invoicing customers as soon as the work is done and following up on late payments immediately. Double your efforts to collect all monies due.

 

     RELATED CONTENT:  6 tips for better managing your small business cash flow

 

7. Get credit. Do you have a line of credit? If not, get one. It’s always easier to get money when you don’t need it than when you do. Get some low-interest credit cards, too; you may need to rely on them later.

 

     RELATED CONTENT:  Get answers and informaiton about business financing

 

8. Explore new marketing channels. Test now to see what’s most effective. Look for low-cost ways to reach customers, such as online advertising and search engine optimization. Consumers are becoming increasingly reliant on voice assistants (Alexa, Siri and Google Assistant) to help with their shopping efforts. These require a different approach to SEO. Social media advertising is a great way to reach new customers.

 

9. Find mentors and advisors to help you. Create an informal board of advisors you can rely on for guidance. Contact SCORE to get free consulting and advice from experienced business owners and mentors.

 

10. Establish a good relationship with your banker. Do frequent check-ins (at least once a quarter) to let the banker know how your business is doing. Be proactive about communicating both good and bad news. Being honest now will pay off later.

 

Schedule an appointment with a Bank of America Small Business Banker

 

By taking these steps, you can better position your business to weather any economic storms.

 

(Disclosure: SCORE and Alibaba.com are clients of my company.)

 

 

About Rieva Lesonsky

 

Rieva Lesonsky Headshot.png

Rieva Lesonsky is CEO and Co-founder of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog SmallBizDaily.com. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America’s entrepreneurs for more than 30 years. Before co-founding GrowBiz Media, Lesonsky was the long-time Editorial Director of Entrepreneur Magazine. Lesonsky has appeared on hundreds of radio shows and numerous local and national television programs, including the Today Show, Good Morning America, CNN, The Martha Stewart Show and Oprah.

 

Lesonsky regularly writes about small business for numerous websites and for corporations targeting entrepreneurs. Many organizations have recognized Lesonsky for her tireless devotion to helping entrepreneurs. She served on the Small Business Administration’s National Advisory Council for six years, was honored by the SBA as a Small Business Media Advocate and a Woman in Business Advocate, and received the prestigious Lou Campanelli award from SCORE. She is a long-time member of the Business Journalists Hall of Fame.

 

Web: www.growbizmedia.com or Twitter: @Rieva

You can read more articles from Rieva Lesonsky by clicking here

 

Bank of America, N.A. engages with Rieva Lesonsky to provide informational materials for your discussion or review purposes only. Rieva Lesonsky is a registered trademark, used pursuant to license. The third parties within articles are used under license from Rieva Lesonsky. 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. ©2018 Bank of America Corporation

Q: Might you be able to suggest any other ways to finance a business, other than the usual suspects like loans, crowdfunding, credit cards, and the like?

 

A. You bet I can. In my book, Get Your Business Funded, I share more than a dozen creative ways to fund the dream. Here are two of my favorites:

 

1. Factoring

 

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Factoring is a process that a lot of companies use when they need a quick infusion of cash but don’t want to, or can’t, get a bank loan or other financing. Instead, they sell an upcoming payment that is due, that is, an invoice, to a company (called a factor) for an immediate payment of a discounted fee.

 

There are several great things about factoring:

 

  • It is quick. Once you find the right factoring company to buy the asset, it is simply a matter of their verifying the amount due and then getting you the money. Usually it’s no more than a week.
  • There are few forms to fill out.
  • Your credit rating is irrelevant. Instead, it is the credit of the entity that owes you the money that matters. Once the debt is verified as due by a legitimate entity, you get the money regardless of your financial situation.

 

There are downsides, as well::

 

  • Usually (but not always, see below) the company that owes you the money will necessarily be made aware you are using a factor and selling the money owed; the factor will contact them so that the factor is paid directly by that company.
  • You will get less than 100 percent. How much less? It depends upon various factors (ha!), but it should be somewhere between 85 percent and 98 percent.

 

The good news is that factoring is changing with the times. One company I like a lot is called Fundbox. Fundbox offers a few different funding options, but for our purposes here, what I love is that its factoring/invoice funding remains private; your customer need never know you sold their invoice.

 

2. Seller Financing

 

This is a great option for startups.

 

When you want to be an entrepreneur, there are all sorts of ways to get into the game. You could start a business from scratch. You could find a partner. You could buy a franchise. You could invest in a business. But of all of the options, one of the best is buying an existing business.

 

Buying an existing business is usually a good idea for several reasons:

 

  • First, it is less risky. With an existing business, you can look through the books and get a good idea of what you are getting and how much money you can make
  • Also, the brand and goodwill are already established; you won’t be starting from scratch
  • Additionally, there is already a client base
  • Finally, you can sometimes get the current owner to help finance the purchase

 

That last point is the one we need to emphasize here. Seller financing is where the seller helps you, the buyer, buy the business.

 

Say what?

 

Yep, you read that right and it occurs more often than you think because it is a fairly risk-free way for a seller to effectuate a sale. Here’s how it works: The owner of a business will find a suitable buyer who may need some help financing the deal. The owner, if amenable, will agree to take a promissory note as whole or (far more often) partial payment for the sale of the business. In real estate, this is known as “carrying the paper.”

 

The reason a seller would be open to this sort of deal would have to be that the buyer offers him or her a solution. Maybe the business isn’t selling. By offering the owner the chance to sell it (if they carry some paper), the buyer kills two birds with one stone: They get the needed financing to buy a business and the owner gets to sell a business. The buyer becomes a solution to the owner’s problem.

 

Additionally, the seller may agree to seller financing because:

 

  • The seller should get an ongoing payment that is typically more than she could get from another investment
  • The seller knows that the loan is safe because the business is viable

 

How much will the seller finance and what does a deal look like? It really depends upon the circumstances but suffice it to say that 100 percent deals are rare. Not impossible, but rare. Far more likely is a deal where a business owner will agree to finance up to 50 percent of the deal. There will be no negotiating over the asking price and the interest rate will be a bit higher than the going rate. The note is usually due in five years, and monthly payments are expected in the meantime, with a possible balloon payment due upon maturity of the note.

 

All in all, seller financing is a good solution for the cash- or credit-strapped wanna-be entrepreneur.

 

     Read next:

 

 

About Steve Strauss

 

Steve Strauss Headshot New.png

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 also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. 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.  ©2018 Bank of America Corporation

As an entrepreneur, you will probably face a handful of major consistent dilemmas, but one of the most persistent and complex is the way you approach the value of your business. This boils down to a struggle between running your business to maximize cash—that is the money that you have in the bank each year—or to maximize equity—that is the overall value of the business entity.

 

These choices are very much at odds.

 

     Related Content: Be Like Goldilocks When Valuing the Sale of Your Business

 

Maximizing cash means that you may take on non-core clients because, well, they bring in more cash! It also means that you pinch every penny and may make decisions that payoff a little today, but don’t add value in the long-term. This includes forgoing investments in arenas like marketing and personnel that often require a cash burn before you see a return on the investment.

 

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     Related Content: Five Ways to Make More Money Without a Single New Customer

 

The benefit to a cash maximization strategy is straightforward; you have more visibility and predictability of cash coming in, year after year.

 

The downside is substantial though. By focusing on cash and forgoing investments, big and small, you may limit the upside opportunity for your business.

 

Running your business to maximize equity requires an iron stomach. It requires more risk-taking but with the promise of more rewards.  Because you are focused on building long-term value, you are laser-focused in your offerings of products and/or services, and you won’t take on non-core clients solely because they have cash ready to spend.

 

It requires not being cheap, too. It means that you invest in the best people, even when maybe you can’t technically afford them. It means dollars focused on sales and marketing and not watching every penny like a hawk. Certainly, it doesn’t mean you spend like there’s no tomorrow but it does require spending like you anticipate tomorrow is going to be big.

 

This can lead to less money available for you to pay yourself and can even require outside capital, whether that be equity or debt.

 

So, when do you make the shift in strategy? Like anything, it is part art and science.

 

If you have not set yourself up financially (for example, you have lots of personal debt, little or no savings and substantial rent or a mortgage due), it may be difficult for you to stay in the mindset required for equity maximization. So, work on paying down personal debt and getting yourself in position to have a few years of financial flexibility first. And note, by financial flexibility, I mean you can feed yourself ramen noodles, not four-star meals.

 

If you have some financial flexibility and you can get comfortable with the discomfort of being a risk taker, then really think about trying to pursue equity maximization for a few years, as it will take time (and always more time than you expect). If it pays off, you will have a much bigger business that should allow you to increase your return on investment by multiples of any cash return you would otherwise receive. The reality is that if you are taking on the risk of being self-employed, you might as well shoot for creating some serious value to the business and not just creating a job for yourself.

 

It’s a constant dilemma, but one that should be carefully considered, as the risks and rewards of pursuing cash vs. equity returns are substantially different.

 

     Related Content: Finding the Right Balance When Trading Equity for Cash

 

About Carol Roth

Carol Roth Headshot for post.png

Carol Roth is the creator of the Future File ® legacy planning system, “recovering” investment banker, billion-dollar dealmaker, investor, entrepreneur, national media personality and author of the New York Times bestselling book, The Entrepreneur Equation. She is a judge on the Mark Burnett-produced technology competition show, America’s Greatest Makers and TV host and contributor, including host of Microsoft’s Office Small Business Academy. She is also an advisor to companies ranging from startups to major multi-national corporations and has an action figure made in her own likeness.

 

Web: www.CarolRoth.com or Twitter: @CarolJSRoth.

You can read more articles from Carol Roth by clicking here

 

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

It is probably safe to say two things about you, the small business owner:

 

First, I bet you went into business for yourself out of love. Either you loved doing something so much that you wanted to do it every day your way, or you loved the idea of being your own boss so much that it was worthwhile to take the risk, leave the job, and venture off on your own. Either way, it was the love of something that compelled you forward.

 

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Second, it is probably also safe to say that you didn’t become an entrepreneur because you loved accounting (unless, of course, you are an accountant).

 

Even so, there are basic accounting and financial analysis tools that you should learn if you want to stay in business for the long haul. One of them is the Profit & Loss Statement, also known as a P&L. Despite sometimes looking imposing, a P&L is really just a basic math equation of your business:

 

Sales – Costs = Profit

 

See, that wasn’t so bad.

 

Now, if you have ever looked at the P&L your accountant or CFO created for you, it likely looks a lot more complicated than that, with sub-categories for sales and costs and what not, but really it just boils down to that simple equation above.

 

Analyzing Your P&L

 

At the top of your P&L will be your sales number (this may also be called “income” or “revenue”). The sales number is usually broken down into a variety of categories, depending upon your business and profit centers.

 

This is where the value of a P&L can really be seen. The P&L is a snapshot of all of your work, boiled down to its essence. Did that marketing plan for the new store work? Look at the sales numbers for the new store and see. Your P&L can tell you which products, services, and revenue streams are paying off and which are lagging. It allows you to make smart decisions about your business.

 

Indeed, if you are wont to do an 80-20 analysis, your P&L will really come in handy. Which of your profit centers is generating the most income for your business? Your P&L will tell you. It will also tell you which strategy may not be worth the effort you are putting into it.

 

Next will be your expenses: Again, when looking at your P&L you will see a variety of categories for your different expenses. For example:

 

  • Labor
  • Marketing and Advertising
  • Inventory
  • Taxes and Insurance
  • Etc.

 

Again, the magic here is that the P&L gives you a birds-eye view of where your business really is, as opposed to where you think it is. While you may have an intuition – and even some facts – that your labor costs are too high, your P&L knows for sure.

 

One jargonesque phrase you may see in your P&L is COGS or COS. COGS stands for Cost of Goods Sold, and applies to product-based businesses. It is the actual cost for producing and selling that product. COS if the same thing for a service business – the costs related to providing your service (as opposed to general overhead for the business.) The equation here is

 

Sales – COGS = Gross Profit

 

This is your overall revenue. After that, your P&L will subtract other costs. The final equation at the bottom of your P&L then is

 

Gross Profit – Other Expenses = Net Profit

 

This is how much money your business actually makes.

 

Do you see how valuable this information is? Your P&L tells you exactly what is working and what isn’t. It explains, in a few short lines, which efforts can safely be doubled-down on and which need to be refined. The numbers don’t lie.

 

My dad the carpet store owner once told me that an entrepreneur is a person who takes a risk with money to make money. What he didn’t say, and what I have since learned, is that a great entrepreneur is one who takes risks, yes, but calculated, smart risks. Your P&L allows you to do just that.

 

Read Next:

 

About Steve StraussSteve Strauss Headshot New.png

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 also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. 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.  ©2018 Bank of America Corporation

Good cash flow is essential for small business success. Is yours as effective as it can be? Learn how to manage operational costs and monthly payments now and prepare for the financial challenges ahead with our new infographic.

Avoiding Cash Flow Crunch

We’re committed to finding the smartest path to long-term growth for your business

Our small business specialists will work to help you strengthen your business and plan for the future.

Talk to a small business specialist today.

 

 

Click here to download a PDF version of this infographic.

Even the most successful small businesses have natural ebbs and flows that affect their bottom line. Learn how to successfully bridge the lulls your company may experience and create more flexibility in your cash flow with our latest infographic.

Avoiding Cash Flow Crunch

We’re committed to finding the smartest path to long-term growth for your business

Our small business specialists will work to help you strengthen your business and plan for the future.

Talk to a small business specialist today.

 

 

Click here to download a PDF version of this infographic.

From managing monthly payables and receivables to planning for the road ahead, maintaining good cash flow is important. Explore ways to optimize yours with the 10 handy tips provided in our new infographic.

10 Cash Flow Tips for Small Businesses

 

Click here to download a PDF version of this infographic.

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