Sin categorizar

Must-know cash flow terminology to help you stay cash positive.

Cash is king, and cash flow — the net money flowing into and out of a business — is your operational lifeblood. When cash is in high supply, you can be riding a wave of exhilaration — making entrepreneurship feel like the golden path. But when cash flow issues arise, it can threaten your entire enterprise.

Sure, you might be able to ‘outwit’ your bank loan challenges, but sometimes borrowing from the bank isn’t always an option. The best way to get ahead of these challenges is to know your options and alternatives to keep cash flow positive.

Here are some cash flow terms to help you stay on top of your terminology.

Break-even point 

The level of sales revenue a business needs to cover all operating expenses, which would put you at a zero profit. (Sales revenue — Cost of sales and other expenses = Zero). Everything beyond the break-even point would be considered a net positive profit level.

Burn rate

This is the rate that a company is losing money, figuratively describing cash as being ‘burned.’ Typically, the burn rate is expressed as a monthly figure, and it can be synonymous with negative cash flow. Investopedia also describes this with a twist in the venture capital world as, “…the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations.”

Cash Conversion Ratio

This is the amount of time between when your business pays for its inventory, also known as your cost of goods sold, and when it receives payment from its customers.

Cash Flow Budget

The cash flow budget is quite simply a report on your business cash flow, showing how much money is entering and exiting the business. The cash flow budget shows how much cash you’ll have on hand at any given period of time.

Related: Learn 7 things a cash flow budget can teach you.

Cash Flow Statement

Also called a “Statement of Cash Flows,” this is part of your financial statements. Explore the steps to create your cash flow budget here.

Discounted Cash Flow

A method used to value an investment by discounting its future expected cash flows to find their value today, or net present value. The discount rate is chosen to reflect the risk of the investment. Possible discount rates are the weighted average cost of capital or the discount rate from similar projects.

Negative Cash Flow

Your cash flow is considered ‘negative’ when cash spending is more than cash generation over a particular period of time. In this case, the business spends more than it makes. See examples here.

Positive Cash Flow

Conversely, your cash flow is considered ‘positive’ when cash generation is more than cash spending over a particular period of time. This should be your goal.

 

Learn much more about factoring terminology in the Ultimate Factoring Encyclopedia. This free resource includes every definition you’ll need to know when applying for invoice factoring and securing working capital. Still have questions about cash flow? Connect with us today!

 

About Liquid Capital

At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital you’re talking directly to your funding source and a fellow business person.

A new year means new opportunities for your small business. Start planning with these top business growth strategies for 2020. 

The final rush of the year usually means many small and medium-sized business owners are focused on hitting sales targets, ensuring contracts are fulfilled and that staff will help make it through the holiday rush. But this time of year, you’re likely also trying to plan for the year ahead. 

Developing a business growth strategy for a new year can be a daunting task filled with uncertainty. Business owners may even forgo planning and stick with the status quo. But some careful planning can unveil areas of opportunity, expose unnecessary expenses and set up their business so it can withstand anything the economy throws at it. 

Whether you’re hoping to hold steady or expand your business next year, here are some of our top business growth strategies that you should keep in mind as you forge ahead.

1. Create a business budget

A business budget helps you allocate resources, control costs, set prices, plan for expansion and, generally speaking, make better decisions for your SMB. It’ll keep you on track for a positive, successful year, while also giving you performance information about your business. You’ll know, at a glance, how well you’re doing by comparing your numbers to your forecasted budget. (Plus, if you ever need to secure funding, you’ll need to create one to show the lender.)

2. Have an emergency fund

This is a classic piece of advice, but a good one for any business to follow. An emergency fund helps you deal with unexpected costs whenever they may arise and can get your SMB back in action right away. Start building your emergency fund into your financial planning now and redirect some of your income into it today. Your business will thank you later.

3. Reduce long-term costs

Instead of just looking at ways to reduce your «regular» fixed costs such as the electric bill for your office, how about looking at your long-term fixed costs? These are things like software subscriptions and year-long leases or agreements. 

By switching from a long-term to a short-term agreement or subscription, you’ll enjoy more flexibility. Yes, you’ll sacrifice some of your profits to pay the higher rate, but you’ll feel better knowing you can scale down your fixed costs whenever you need to. That peace of mind might outweigh the additional cost.

4. Reduce uncollected revenues

In the enterprise world, interest and late fees are the norm. Vendors and customers who run afoul of payment dates are penalized appropriately. SMBs, however, may be hesitant to do this for fear of offending and losing their customers. But when a customer is late paying you, you’re essentially lending them money, which can have a wide range of negative impacts on your financials. So consider offsetting your losses from late-paying customers by charging penalty fees.

Want to get ahead of late-paying customers and accounts receivable challenges? Consider factoring your invoices to get more working capital upfront. Here’s how it works.

5. Understand your winners and losers

That is, your product winners and losers. Chances are you probably have a few that offer high returns and great value to your customers. Investing in these can bring higher profits. On the flip side, you’ve probably got other products that aren’t performing to expectations. It can be a hard call to retire those, but once you realize you’re spending far more on development, production and marketing than you’re receiving in revenue, it’s much easier to do.

6. Encourage customers to buy during your slow times

Every business experiences slow periods throughout the year, and when nobody’s buying, you’ll need a proactive plan to incentivize your customers. Brainstorm ideas on how your products can provide great value and then market them appropriately. You could use the same strategies to market your existing products year-round (like a «Christmas in July» promotion), or offering complementary services to your business. For example, if you’re a landscaper, offer snow plowing in the winter. Or if you’re a manufacturer, offer a Spring Super Savings discount to preferred customers who haven’t yet placed orders.

7. Eliminate unprofitable clients

Stop working with slow or late-paying customers and you’ll immediately save money. By freeing up time to work with higher-paying customers, it can lead to more income. The key is to focus on customers who deliver greater profitability for your business and eliminating the ones who don’t. Review your customer roster regularly and trim the lower-value customers as needed.

With a few financial tweaks, your business can be set for success in 2020.

Using these business growth strategies can help you reduce expenses, save time and, most important, improve your overall financial health. Find out more about how we can help. 

About Liquid Capital

At Liquid Capital, we understand what it takes for small, medium, and emerging mid-market businesses to succeed – because we’re business people ourselves. Our company is built on a network of locally owned and operated Principal Offices, so whenever you’re talking to Liquid Capital you’re talking directly to your funding source and a fellow business person.

 

Businesses generally don’t fail overnight. There are warning signs that a business is struggling long before the situation becomes critical. If you can spot these signs early enough, you’ll be able to take steps to mitigate – and hopefully reverse – the decline. Ignoring these signs may lead to passing the point of no return. 

Here are five warning signs that your business could be in decline.

1. Keep an eye on overall activity

It can take time for a slump in sales to manifest itself in the accounts and cash flow. And ongoing business from existing customers may hide the decline in new sales. So it’s important to keep an eye out for a general decline in business activity month over month. Your sales team might have fewer appointments than usual, for example. Or, you might notice that the phone doesn’t ring as often as it used to.

2. Are you experiencing higher employee turnover?

A sharp increase in employee turnover could be a sign that something isn’t right. It could be a general lack of morale or dissatisfaction with pay that is causing the problem. Or it could be a management style issue. Aside from the usual suspects, it could also be a sign that employees have seen something that you have missed. If employees see the writing on the wall, they won’t hang around until the bitter end, and instead will start looking for new jobs straight away.

3. Are you taking longer to pay suppliers than you used to?

It’s not unusual to need to pay suppliers late once in a while. However, it’s a bad sign if this has become normal practice, and if you start to receive final notices and demands for payments, that is a big red flag. You will spot the trend earlier if you keep a watchful eye on your accounts payable “average days to pay” ratio.

Related: Is cash flow stressing you out? Here’s what to do…

4. Watch out for negative cash flow

A steady increase in your use of credit facilities is a sign that you have a cash flow problem. Using more credit means that the business is being supported by finance rather than by equity and sales revenues. The amount of finance that you are using may fluctuate from one month to the next, and a gradual increase in the use of an overdraft facility may not get noticed at first. Even so, an increasing reliance on credit indicates that there is an underlying problem with the business.

5. Keep an eye on sales trends

Another trend that needs tracking over time is the business turnover. One month of lower than usual sales is no reason to panic. If there is a steady downward trend over several months, though, it is cause for concern.

 

It’s very easy for an owner to look at their accounts and business through rose-tinted glasses. No one wants to learn that their business is in trouble, and it can be a hard fact to accept. Don’t ignore worrying trends or convince yourself that things will get better next month. Take action now and you will be in better control of the overall business.

Up Next: 3 more warning signs of a business downturn

Many people assume that only big, international companies can gain something from new technologies. But in reality, even a small business can find the right solution to grow and expand into new markets. It could even be easier than you might think.

After all, most of us use the internet all the time in our daily lives, and a little extra online promotion in the right areas can go a long way to increasing your revenue. With a good marketing strategy, you might even be surprised how much you can achieve.

1. Tell your clients who you are

In your daily life, when you’re looking for a great place to visit on your next vacation or for a reliable mechanic to fix your car, your first step is most likely trying to find them online. It’s no different in business and for your clients, so it’s important to use online tools to attract new customers. The first step is creating a professional website for your business. Make sure to include all your contact information, but also a detailed description of your products and services. Another good idea is to start a blog where you’ll be able to share interesting news about your industry and new solutions that you offer.

2. Use social media to get your message across

Think about how many people use social media and how many of them could be new clients. There’s a lot of potential on different social networks, but first you’ll first need to connect with people and gain a following. To do that, start by posting relevant and interesting content to engage with your audience in a natural way. Find ways to stand out by offering a unique perspective on topics that showcase your expertise, and offer solutions to problems that your customers may face.

You don’t necessarily have to create accounts on all available platforms, as it can be difficult to manage all of that content and potential responses. At the end of the day, it may be more beneficial to have just one profile but with regular updates.

3. Find the best solutions for your company

There are many apps and programs you can use to improve the way your business operates. From calendars to invoicing systems, you’ll find a solution to every problem you may encounter. And even if you won’t be able to find something that will meet your specific requirements, you can look for bespoke options. But remember that even a software company located internationally can have better solutions for your business than a similar one in your area. To find the best one for your company, you should focus more on their portfolio than on their location.

4. Improve communication

With new technology, you’ll be able to communicate without any trouble. And you could even save on your communication bills at the same time, as contacting your international clients won’t be a problem. Plus, by enabling your employees to talk to one another online, you’ll see their productivity rising. That’s because they’ll be able to access all the necessary information in the fastest possible way, without having to walk across the office to find an answer. In modern business, everything is about being efficient, and using the internet can help you achieve this goal.

5. Keep your data secure

You need to make sure your business network and your website are secured with strong passwords. It’s also a good idea to keep backup storage for all your data. The most convenient way is probably storing your files in the cloud, which will also allow you to access all the necessary information easily no matter where you are. Plus, giving access to specific documents to people who need them will be a matter of seconds.

 

Technology is constantly changing our lives, and it’s affecting how we run our companies as well. There’s no reason to ignore the opportunities offered by the internet. You have a lot to gain, so look for solutions that will work best for you and be ready to take your business to the next level.