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Five quick ways to improve your cash flow
Six ways to increase the value of your business
Five Quick Ways to Improve Your Cash Flow
How to Keep Your Small Business’ Cash Flow Flowing
By Susan Ward, About.com Guide
Cash flow is truly the lifeblood of any small business. So when tight credit starts choking your cash flow, it's important that you act right away to remove the blockage and get your business' cash flow flowing again. Here are five quick things you can do to improve your small business' cash flow.
1. Invoice promptly.
Many small businesses have a regular billing routine such as invoicing clients and/or customers at the end of the month - leaving money that could be sitting in their bank accounts improving their cash flow in someone else’s pockets! Instead of waiting to invoice, bill right away when the job is completed. If your business involves billing for hours of time, invoice twice monthly instead of once to get some of your money coming in sooner.
2. Ask for partial payment up front.
Instead of waiting to invoice until a job is completed, ask for a percentage of the bill to be paid before the work starts. For instance, you might charge 40% of the bill as a retainer or proof of good faith with the remainder due on completion of the task. Or break the bill into thirds, asking for a third before work starts, a third while the project is ongoing and a third upon completion. It's a common business practice and one you should be taking advantage of if you can.
3. Give a reward for quick payment.
Money you are owed but don't collect is a real cash flow drain. You can get some customer and/or clients to pay immediately by offering them a discount if they pay within a certain time frame, giving your cash flow a nice boost. A 2% discount for paying within ten days is the most common scenario.
4. Go after receivables.
Make it a regular practice to review your receivables and identify accounts that are late paying or overdue. Then make the phone call or send out the letter or email requesting payment. Some clients and/or customers just need reminding. And when reminding doesn't work? Time to put the collections agency to work.
5. Pay bills only when they're due.
Check your suppliers' payment terms and determine when payment is due (30, 60 or 90 days). Then wait to pay until whenever the due dates are rather than paying right away. Timing your business' bill payments this way will help keep your cash flow flowing, as it will keep the cash in your business longer.
These are just some of the things you can do to get your cash flow moving again - some of the quicker, easier things. The other things you can do can take longer to implement but are well worth doing, especially if you are having or anticipate having cash flow problems.
Employee Theft a Big Problem for Small Business
by Patricia Schaefer
Open up your daily newspaper on just about any given day and there's a very good chance you will see an article about one or more employees caught stealing in some form from their place of employment.
Two such cases were recently reported within a four-day span in one New York newspaper: a woman who allegedly claimed her ailing boyfriend as her husband in order for him to receive medical treatments (it cost her employer over $100,000 in out-of-pocket costs); and, two employees at a retail establishment who supposedly stole and sold store merchandise for profit on eBay. Thus far but still counting, stolen merchandise is already valued at over $50,000.
Employee theft -- pilfering, larceny and embezzlement to name a few -- comes under the umbrella of what is considered fraud. However defined, the end result is the same: businesses suffer a loss because an employee unlawfully takes something from an employer. On average, it takes 18 months for an employer to catch an employee who is stealing. Most employee theft comes to the attention of the employer either by another employee or is revealed by accident.
Every year billions of dollars are lost by businesses nationwide to employee fraud and theft and the number of incidents are rising. If your business is small, you're especially vulnerable to occupational fraud and less able to absorb a loss than a larger business; in fact, it is not unusual for a small business to be bankrupted by the theft of a single employee. In their 2004 Report to the Nation on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (CFE) reports that small businesses suffered a median loss of $100,000. This is higher than the losses experienced by all other sized businesses except for the largest organizations.
In "How to Prevent Small Business Fraud: A Manual for Business Professionals," CFE cites two key factors that contribute to the large losses suffered by small companies -- lack of basic accounting controls and a greater degree of misplaced trust. More often than not it is the long-trusted employee -- typically the small business's one-person accounting department -- who is found to be the thief. In other words, the person you least suspect is usually the one who commits the crime.
Why and which employees steal from their employers
Generally, it is more often the younger employee under the age of 35 who steals from an employer, although older workers who do steal tend to take much more than their younger counterparts. Managers are the usual culprits for the worst cases of fraud. It's typically not the new-kid-on-the-block, but the long-term and trusted employee who ends up being the company crook. Often, it is someone who's been with a company for more than three years. Employees at private companies cause more losses than those at public or non-profit establishments.
There's an old saying that's long been accepted in fraud prevention circles called the 10-10-80 rule: 10 percent of people will never steal no matter what, 10 percent of people will steal at any opportunity, and the other 80 percent of employees will go either way depending on how they rationalize a particular opportunity. The good news is that there is much a business can do to sway this 80 percent to their side.
Another widely accepted theory is that of the late Dr. Donald R. Cressey called the "Fraud Triangle." According to this theory, there are three factors -- each a leg of a triangle -- that, when combined, lead people to commit fraud.
One leg is an individual's financial problem or need that they perceive is nonsharable; i.e., a gambling debt. The second leg is this individual's perception that there exists at the place of business an opportunity to resolve the financial problem without getting caught. The third leg is the individual's ability to rationalize or justify the intended illegal action ("After all I did for my company, they mistreated me. I was entitled to that money."). In shorter terms, PRESSURE plus PERCEIVED OPPORTUNITY plus RATIONALIZATION equals FRAUD.
Some key ways to prevent employee theft
The first step to preventing employee theft is to screen job applicants thoroughly before hiring them in the first place. Background checks should be performed and should include a check on criminal history, civil history, driver license violations, as well as verification of education, past employment (including reasons for leaving), and references.
Consider running a credit check on prospective employees, as people with financial difficulties are more prone to fraud. In order to do this, you are legally required to notify the job applicant in writing that a credit report may be requested. You also need to receive the applicant's written consent.
Studies show that the more employees believe they will be caught, the less likely they are to steal.
Be clear with employees that your company has zero tolerance for employee theft of any sort. This includes not only outright stealing, but also things such as taking a long lunch break without approval, using sick leave when not sick, doing slow or sloppy work, or coming to work late or leaving early.
Write and distribute a company policy that outlines exactly what constitutes stealing. Contact your local police department if you do discover an incident of employee theft so you send a message to your employees that stealing will not be tolerated.
Business owners and senior management must themselves be role models of honesty and integrity, or they may risk setting up a work environment that justifies illegal and criminal activity.
Avoid at all costs allowing the finances of a business to be handled and controlled by a single individual. Separation of duties is critical, and no employee should be responsible for both recording and processing a transaction; i.e., Don't allow the same person who sends out bills to collect the mail and prepare bank deposits.
Run irregularly scheduled surprise audits or have a third party audit your books once a year. Also insist that your bookkeeper or any employee who has access to monies take a yearly vacation so you can examine their records.
Make sure all checks, purchase orders, and invoices are numbered consecutively, and regularly check for missing documents.
Use a "for deposit only" stamp on all incoming checks to prevent an employee from cashing them.
Personally look into customer complaints that they have not received credit for payments.
Most incidents of employee theft are revealed by coworkers, but many still are hesitant to report these incidents to their employers. Set up a system whereby employees may report employee theft anonymously. You may also want to consider offering rewards for informants while keeping their identify confidential.
Unopened bank statements and canceled checks should be received by the business owner or outside accountant each month and they should carefully examine for any red-flag items such as missing check numbers. They should also look at the checks that have been issued to see if the payees are legitimate, and make sure that the signatures are not forgeries. ?
Require all checks above a nominal amount to have two signatures. Never sign a blank check. Sign every payroll check personally. Avoid using a signature stamp.
Get an insurance policy that covers outside crime, employee theft and computer fraud. It will be there as a safety net in case your fraud prevention tactics don't work.
Small business owners should take the time to review accounts payable by checking cash disbursements and payments. A very common scheme to look out for is billing-scheme fraud where an employee sets up fictitious "phantom" vendors.
Be alert to disgruntled or stressed employees, or those who have indicated that they are having financial difficulties. Also look for any unexplained significant rises in an employee's living standards.
A positive work environment has been shown to deter employee fraud and theft. Open lines of communication, positive employee recognition, and fair employment practices will assist in the reduction of occupational fraud.
Copyright 2006, Attard Communications, Inc. Business Know How
Six Ways to Increase the Value of Your Business
The day may come when you will want to sell your business. Before you put it up on the block, make sure it’s exactly where it should be so you can get full value on the sale.
You’ve worked hard over the years to build your company, and now you’re thinking about selling all or part of your business. But before you put it on the block, consider this question: How can you be sure that your business will be fully valued, or will even be attractive to a prospective buyer or investor. Very often businesses are undervalued because executives overlook or underestimate the importance of six critical factors buyers use to make their decisions. The good news is that by addressing these issues well before you put your business up for sale, you can significantly increase margins and growth and maximize the value of your business in the marketplace.
Are You Leaving Money on the Table?
Buyers actively seek to buy underperforming businesses where a combination of operating improvements and growth can result in high returns. Take the fictional example of a large private equity fund that purchased a rapidly growing technology firm. The revenues declined under the former owners from approximately $40 million to less than $20 million. EBITDA (earnings before interest, taxes, depreciation and amortization) declined from over $10 million to less than $5 million. ??The buyer brought in new management and made numerous operational and financial changes to increase EBITDA to $10 million within a year of buying the company. The new management team took steps to save on manufacturing costs. A new sales team was able to increase sales and reduce working capital. This story gets repeated numerous times across every industry when buyers, such as private equity funds, announce a successful exit from an investment. The question for you is, will you make the operational improvements and have your company fully valued, or will those gains go to the buyer because they made the operational improvements To increase the value of your business, think like a prospective buyer or investor. Use the following questions to help you determine where to focus your efforts:
Do you have a clear vision and mission for your company, and can you communicate it to your buyer?
A well-defined statement of vision and mission sets the context for all of your business decisions. However, buyers will be looking to see if these statements are supported with up-to-date systems and processes. This includes: a strategic business plan, annual budgeting process, accurate financial statements and specific metrics for operating the business. Many times, pieces of this information can be out of date or missing, especially when a company is in high growth mode. The inability to maintain accurate records can cost your company dearly in creditability and valuation. Keeping this data current in an easy-to-access format generates confidence in your company’s ability to achieve its vision and mission and allows the buyer to give your team the benefit of the doubt for those “off ” years when earnings and sales were down.
Is your business growing at a rate commensurate with or above the rate of growth for similar-size businesses in your industry?
If your industry is growing but your business is not increasing at or above the growth rate of the industry, you need to look at changing your customer base or changing the way you sell your products. The growth rate of your business is critical because it demonstrates the acceptance of the product by the customer base. If the growth is below the industry average, a problem exists somewhere in the business. High-growth businesses command a higher multiple of EBITDA than ower-growth businesses. A buyer is looking to double or triple the investment in five years and needs to be convinced that high growth is possible, or the investment will not be successful for them. Looking at why your business is not growing at or above the industry norm and making the appropriate changes could have a significant impact on your businesses valuation. (To find out where your business stands, contact your industry trade association.)
Is your business operating at or above the gross margins for similar-size businesses in your industry?
If your gross margins are below the industry norm, you need to reduce your materials costs or lower your labor and other direct costs. These costs of goods sold often have a large variable component, meaning that management has greater control over these costs than other fixed costs such as long-term leases. The gross margins reflect how much pricing power the business has as well as how well you manage the purchasing of raw materials and control labor costs. Low gross margins imply a commodity business with little competitive advantage other than price. Higher margins command large purchase price multiples since they imply a defensible market position.
Do you have an undue concentration of revenue with a single large customer?
We would recommend that a balance be achieved of no more than 10% to 15% of sales from any one customer, with the balance of sales being broadly diversified among numerous smaller and midsize customers. Your customers should also be spread among more than one industry. A large customer, one that creates over 30% of your revenue, can put your company at risk if the customer goes out of business or decides to replace your company with another supplier. This can reduce the valuation because the buyer will want to mitigate this risk by paying a lower price. Therefore, while the sales cycle may be faster by concentrating on selling to a few large customers, creating a balanced portfolio of revenue is an essential strategy if you’re interested in gaining maximum value for your company.
Is your organization optimally led and managed?
One of the most important criteria for a buyer is a competent, high-performance executive team. While documented processes are one measure of control, it’s important to look for multiple pieces of evidence that the rest of your organization is operating at maximum speed and effectiveness. Persistent organizational problems, such as unusually high employee turnover, absenteeism, hiring difficulties, resistance to new technology and a high number of customer complaints, can often be signs of overlooked leadership and management issues. The greater the degree to which formal processes are in line with these measures of organizational reality, the greater the buyer’s confidence will be in your executive team and in the organization’s ability to deliver what it promises.
Higher Value for Your Future?
If your company comes up short in one or more of these areas, it may be tempting to leave these issues for the next owner to fix. However, as we demonstrated in the technology company example, this can result in leaving money on the table. By addressing these issues as they arise, not only will you get the larger payoff at the end, but you will also benefit along the way because you will improve your company and be able to enjoy its success.
The New York Enterprise Report