Monthly Archives: January 2017

Top 7 Investment Tips for the Small Business

Running a business isn’t easy, especially when capital is low. Unfortunately, you can’t run a business on skill and determination alone. If you’re feeling a little shorthanded in the financial area for your business, it might be time to consider investing. Here are a few tips that can get the average small business owner started in the investing game.

1. Start with Penny Stocks
A penny stock is basically a common stock sold for less than a dollar on the market. It’s a highly volatile investment, but worth so little that it makes a great place to start for new investors. As a small business owner, you can get started trading penny stocks to learn the market and develop more skills as an investor. Once you’ve gotten the hang of things, you may choose to continue experimenting with penny stocks or move on to different investments.

2. Align Investments with Business Goals
As a SBO, there are many entities to consider with your business before making any kind of speculation. To begin with, you’ll want to take a closer look at your business goals, business plan, debt load, and financing. Investing should be a way to enhance income, not supplement it.
In other words, taking money needed for another part of your business in order to multiply your holdings isn’t smart. If the investment turns sour, you’ve lost money on both the investment and your business, which will make it difficult to recover, particularly if cash flow is low. Instead, keep your business’s best interests in mind when investing. Use surplus profits to make down payments on investments, and always remember that investing should not be treated like gambling.

3. Diversify Investments
As a general rule, try not to put all of your eggs in the same basket. That way, if one of your stocks devalues, you still have a chance to make a profit with one of the others. This reduces your overall risk as an investor and helps you to preserve your business interests.

4. Consider Mutual Funds
When making savvy investments, there’s a level of risk and return that must be considered, and there should always be a balance. If you’re just starting out, the lower the risk, the better – which makes investing in a mutual fund a great place to start.
In large mutual funds, hundreds of stocks are combined in one place, and a fund manager puts money in the fund to increase the growth rate. The risk of losing money in such an investment is extremely low, making it a worthwhile opportunity. With your stocks slowly growing, you can better understand the ups and downs of the market and prepare yourself for bigger ventures.

5. Keep Time on Your Side
Investing is in no way a get rich quick scheme, even though many amateur investors treat it that way. It’s a long-term game where the best returns come to those who wait. Even when things look bad in the market, it’s not always a sign that you should pull your money. After a bear market, the resulting returns tend to be much higher, but only for those who wait for the right time to sell. Trying to pull your investments out when the market is bad and put them back in when it’s good will cause you to miss some of the best returns.

6. Avoid Leverage
It’s true that leverages can increase your profits, but it’s important to remember that it can go the other way as well. It will amplify your losses just as much as your gains, and that’s a little too much to gamble when your business is at stake. If things go bad, the broker could actually issue a margin call, which would require the investor to put up extra cash to make up for the deficit.

7. Minimize Taxes and Fees
Unfortunately, trading and selling within a market setting isn’t free. There are often hidden fees and taxes you need to consider. These charges can amount to as much as 30 percent of your profits if you don’t get them under control from the beginning, so learn how to minimize your costs. Before you make an investment, look at the fees and taxes involved to determine if the fees are worth the risk.

Procuring and Managing Working Capital

Have you ever thought to yourself, “If I just had enough working capital, I could push my business in the right direction?” Well, the good news is that there are ways to bring in working capital from the outside and grow your business. You will need a strategy, though.
The In’s and Out’s Of Managing Working Capital
When looking at the health of a company, you can determine a lot by asking this one simple question: “How much working capital do you have?” The reason this question is so important is that working capital is a signal of a company’s operating liquidity. In other words, having enough working capital indicates that a company is able to pay for all short-expenses without tapping into other resources.

The amount of working capital your business has — to an extent — determines your credit-worthiness. If you have lots of working capital, you’ll be viewed as a stable and responsible business. If you’re running low on working capital, then there will be lots of question marks surrounding your financial situation.
How Much Working Capital Do You Need?
Every business needs working capital, but the goal isn’t necessarily to obtain as much working capital as you can. Having too much working capital may actually be an indication that you don’t have enough assets invested for the long-term. So, what’s the sweet spot — and how much does your company need?

Unfortunately, it’s impossible to provide you with an accurate answer. So much depends on your current situation, growth goals, cash flow, profitability, and more. Look at your operating cycle and get a firm grasp on how long it takes to turn the revenue produced from a sale into cash that can be used to grow the business and pay off expenses.
If your operating cycle is longer than it should be, then you need an infusion of working capital. If your operating cycle is quite short, then you may only need a small amount of additional working capital to tide you over.

Based on your operating cycle and current financial situation, develop three sets of projections: conservative, moderate and optimistic. Review them carefully with a business analyst and then determine what you realistically need. You can then turn your attention towards obtaining working capital to meet your demands.

5 Ways to Obtain Working Capital
When it comes to obtaining working capital, there are a number of options. Understanding how these options align with your business is the key to leveraging the right opportunities. Here are a few common ways businesses procure working capital:

1. Bank Line of Credit
A line of credit is one of the preferred options for businesses looking to procure some working capital. While a line of credit is often hard for a new business to obtain, companies that are well capitalized by equity (and have good collateral) can sometimes qualify.
With a bank line of credit, businesses can borrow funds when the need arises and repay once accounts receivable are collected from the short-term sales period. A line of credit is usually extended for a year and is expected to be paid off within 30 to 60 days of the funds being used.

2. Private Line of Credit
A line of credit is ideal for businesses, but most won’t be able to receive them from a bank. They require stacks and stacks of documentation and months of processing. The good news is that there’s an alternative.
A private line of credit works much like a bank line of credit, but requires fewer hoops. Many private financers promise faster approval processes, limited paperwork and decisions that are independent of personal credit. In other words, you get the same benefits of a traditional line of credit, but don’t have to spend months filling out paperwork and tracking down documents.

3. Trade Creditors
Have you established good relationships with trade creditors? If so, it’s not unheard of for a business to solicit help in providing working capital for short-term needs. For example, let’s say you typically pay your creditors every 30 days. If you receive a big order that can be fulfilled, shipped and collected in 60 days, you may be able to obtain 60-day terms from your supplier.
In order to obtain working capital from a trade creditor, you’ll need to supply them with proof of purchase orders. It’s also not uncommon for the trade creditor to file a lien on it for additional security. However, if you’re confident that you can collect, there shouldn’t be any problems.

4. Factoring
One option that businesses often aren’t aware of is factoring. Under this option, you fill an order, and the factoring company buys your accounts receivable and handles the collection process. This option obviously comes with less control — and is more expensive than other techniques — but is often used by new businesses with no other alternatives.

5. Short-Term Loan
Finally, you may qualify for a short-term loan. This isn’t typically thought of as an option for obtaining working capital, but it can serve the same purpose when a line of credit isn’t extended. These loans are frequently given out to handle seasonal inventory buildup. It’s not the first choice, but is better than nothing.

Tips for Managing Working Capital
There’s a time and place for monitoring long-term financial goals, but businesses must pay attention to short-term working capital in order to be successful. This is why working capital management is so important.

“Proper management of working capital involves trying to achieve a balance between minimizing insolvency risks and maximizing the return on your assets,” serial entrepreneur Ajaero Tony Martins explains. “It is also advisable for you to take note of the fact that while the long-term analysis of your finances is mainly focused on strategic planning, the process of managing your working capital deals with daily operations.”
With daily operations and short-term goals in mind, here are some helpful tips for managing working capital in your own business:

Focus on forecasting. Cash flow forecasting is the key to effective management of working capital. Always take into account the unexpected and be pessimistic whenever possible. Unanticipated events will always arise and you’ll need a built-in cushion to sustain these issues.

Handle disputes properly. Disputes with customers can end up costing you a lot of time, which directly impacts your ability to pay off your working capital. Always have concrete procedures in place for how to handle disputes. Not only is this important for your financial health, but it also plays a major role in customer service.

Create contingency plans. Even with pessimistic forecasting and plans for handling customer disputes, there need to be contingency plans in place for other unexpected events that put your business performance at risk. Create contingency plans for anything and everything.

Send out invoices sooner. Having trouble tracking down payments? Try sending out invoices as soon as possible. While 30 days has long been considered the norm for payments, don’t rule out the possibility of instituting 15-day terms. These terms are becoming more commonplace and can prevent cash flow issues.
How you manage your working capital will determine whether or not you have access to additional working capital in the future. Keep these tips in mind and never let down your guard; successful management of working capital requires acute awareness.

Special Strategies to Increase Your Bottom Line

When business owners strategize ways to increase profits, their energy is usually focused on how they can attract more customers to generate additional sales. However, working smarter — not harder — is the key to boosting the bottom line. Improving net earnings is directly linked to controlling costs, increasing productivity, marketing resourcefully and tightening credit terms.

Strategies to Increase Your Bottom Line
Train Employees to Increase Productivity
Well-trained employees who know the scope of their jobs and are held accountable for their productivity can save companies thousands of dollars each year. The time and money invested in training employees to be savvy customer service representatives, enthusiastic brand ambassadors and productive team members are returned in higher-quality products, increased output, happier customers and better retention rates. Along with training, productivity tracking programs can identify which employees are excelling at their jobs and which under-performing employees need extra support. Strong training programs focus on developing functional skills, improving company processes and streamlining strategic goals.

Market Smarter, Not Harder
Marketing smart requires paying close attention to the return on investment (ROI).
put into advertising channels. Many marketing professionals theorize that spending $100 to make a $50 sale is worth the effort since that one customer could potentially generate long-term business. However, low-value customers rarely return because they are always on the lookout for the next best deal.

When creating strategies to increase your bottom line and satisfy marketing goals, instead of focusing on growing sales by 20 percent during the next six months, look for ways to decrease the cost per customer acquisition by 20 percent. Target existing customers by offering enticing add-on goods and services that improve the quality of the company’s main product. These high-value patrons are more likely to purchase these additional items because they already believe in the company. This approach not only strengthens customer satisfaction but also boosts sales so that businesses are improving their top and bottom line.

Control Overhead Expenses
There are a number of unnecessary costly overhead expenses that often run good companies into the ground. Decrease an office lease by sharing space with another vendor or allowing employees to telecommute. Take advantage of software programs that automate routine tasks, such as accounts payable, email marketing and data storage. Every two to three years, seek out updated quotes for insurance, printing and supplies to ensure you are receiving the best prices. Budgets should also be reviewed annually to determine if cuts can be made to overhead expenses that do not affect employee performance or product quality.

Revise Collection Procedures
Late-paying customers can create serious cash flow situations that too often lead to the demise of a business. Having multiple delinquent client accounts is a sign that a company’s credit terms are too loose. Revise the general terms by implementing late fees or charging interest on unpaid invoices. Rein in the amount of credit extended to chronic late payers by requiring partial payments before a new project begins. Offering an affordable installment plan can also encourage clients to reliably send in a check for services rendered.