Archive for the 'Cashflow - Credit - Collections' Category

Managing the three clocks of small business

Published
by
Jim Blasingame
on April 15, 2013
in Cashflow - Credit - Collections and Finance - Accounting - Taxes
. 0 Comments

“Time Is On My Side,” is the title of one of the classic rock ’n’ roll songs performed by Mick Jaggerand the legendary English band, The Rolling Stones.

This bold statement works in a song, but for small businesses … not so much. The reason is because of the complicated dynamic between time and our most precious asset, cash.

In the marketplace, there are actually three different clocks at work that every business uses: one for operating expenses, one for sales and one for cash. Let’s take a look at how these three clocks impact your small business.

Operating Expense Clock
Every month like clockwork, regardless of sales volume, cash collections or profitability, payroll must be met, rent must be paid, taxes must be remitted, plus phone, utilities, insurance bills, etc., must also be paid. The Operating Expense Clock is hardwired to Greenwich, England for accuracy within a nanosecond per millennium, and nothing stops it short of a global, thermonuclear holocaust coinciding with a direct hit from Haley’s comet.

The only way to influence this clock is through operating efficiencies – you won’t be billed for what you don’t buy.

Sales Clock
This clock is powered by the customer relationships you’ve created so sales result each month. You project when each sale will occur by qualifying prospects and attributing a clock to each potential transaction so that you can budget future sales volume and meet your cash requirements.

How the Sales Clock operates is completely logical and intuitive, but it only works in your favor when the purchase requirements of customers have been met.

Cash Clock
What is not logical or intuitive is the Cash Clock and its relationship with the other two. Think of it like this: Cash is to sales as snow is to cold: You can have cold without snow, but you can’t have snow without cold. You can have sales without cash receipts, but you can’t have cash receipts without sales. And expenses are like weather – you get some every day.

But what hits small business owners hard is that for every glitch in the mainspring of the Sales Clock, there are 1,000 potential sprocket failures that slow or stop the Cash Clock. Consequently, the Cash Clock requires constant maintenance.

Murphy’s Law lives inside the Cash and Sales Clocks, but the Operating Expense Clock is immune to this insidious law and rocks on just like The Rolling Stones.

Small business success requires understanding the three clocks of the marketplace.

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Check out my latest segment from The Small Business Advocate Show below. I go into more detail about managing the clocks in your small business

Managing the three clocks of small business

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Blasingame’s Law of Sales Pipelines

Published
by
Jim Blasingame
on June 19, 2012
in Business planning and Cashflow - Credit - Collections
. 0 Comments

Selling is a numbers game. Do you know how to manage your sales to plan future revenue? Watch as Jim explains the sales pipeline and how to use it to forecast sales, revenue and cash flow.

Watch more of Jim’s videos HERE!

Take this week’s poll HERE!

Check out more great SBA content HERE!

Execute the pricing power imperatives

Published
by
Jim Blasingame
on May 15, 2012
in Cashflow - Credit - Collections and Economy: National and Global
. 0 Comments

Small businesses are finding themselves between a rock and hard place.

The rock is inflation.

For several quarters, rising inflation has pushed up marginal costs and operating expenses. Some increases are dramatic, like hikes in raw materials. Others are more subtle, like increases in copy paper, which aren’t noticeable every month, but add up over the year.

The mother of all price increases is petroleum. The doubling of fuel prices in the past three years has compounded the inflation of cost of goods sold, because every tangible product has a delivery fuel ticket applied to it. And, of course, the fuel bill for company vehicles is burning cash and eating profit.

The hard place is a lack of pricing power.

A business has pricing power if it can raise prices when needed or desired; most often employed to pass along cost increases. Having pricing power is a good thing for any business, but alas, as you will see below, most small businesses don’t have it – or at least as much as they need.

Recently, in our weekly online poll, we asked small business owners this question about inflation and pricing power: “Are you able to raise prices to offset increases in costs and expenses?” Here’s what we learned.

Almost half, 49%, said, “Somewhat - but it’s difficult to match every increase.” Slightly fewer, 46%, reported that they were “not able to pass through cost increases.” And just 5% said, “Inflation is not hurting us.”

When a business experiences inflation without pricing power it puts pressure on cash flow and profitability. Younger businesses are the most vulnerable, because they don’t have the equity to withstand the cash-eating effects of this dangerous dynamic. Older companies that have retained profits can endure longer, but every day spent in the inflation-without-pricing-power vortex is an equity-eroding day closer to failure. So why don’t small businesses have more pricing power and how do they get it?

The reason is, while small businesses have many advantages, most are associated with being versatile and nimble, not with power. And the way to acquire at least some pricing power is to develop a strategy that includes the three pricing power imperatives: Communicate, Educate and Execute. This means reminding and explaining to customers in advance that your price increases are associated with the same inflation they are experiencing.

Small business pricing power requires discipline, planning and courage.

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Click on one of the links below to listen or download my recent conversations with Bob Phibbs, author of You Can Compete: Double Sales Without Discounting, on how to develop a pricing strategy for your small business.

Is it time to get serious about raising prices? with Bob Phibbs

Why every small business needs a pricing strategy with Bob Phibbs

Check out more great SBA content HERE!

Take this week’s poll HERE!

Small Business Bank Relations are Improving

Published
by
Jim Blasingame
on February 16, 2012
in Banking - Investors - Capital and Cashflow - Credit - Collections
. 0 Comments

One of the markers of big businesses, especially publicly traded ones, is they have many capital sources.

For small businesses there are basically only three:

  1. Equity capital from the founder(s) and investor(s).
  2. Retained earnings - profits left in the business.
  3. Borrowed funds, typically from a financial institution.

The lion’s share of all small business capital comes from # 3, bank loans. Consequently, since small businesses generate over half of GDP, it’s easy to see that the health of the banking industry, and its receptiveness to small business, is vitally important to the U.S. economy.

Periodically, we poll our audiences about their banking relationships, which we did again recently. We asked, “Which example best describes your recent experience with a business loan from a bank?” and here’s what we learned.

Almost four of ten of respondents to our unscientific poll said, “We have gotten a business loan from a bank in the past year.” About one fourth of our sample said, “We can get a loan from our bank if we need one, but we don’t want one.” Here’s the good news for the economy in these responses:

  1. The greatest number of our respondents wanted, qualified for, and got a bank loan;
  2. At this point in the recovery, most bank loans by small businesses are more likely to fund opportunities rather than to save the business;
  3. Added together, approximately two-thirds of our small business respondents are confident they have the ability to borrow capital when, and if, they need it.

Sadly, about one-third of our audience is still struggling with their capital requirements. Ten percent said, “We need a loan, but can’t find a bank that will loan to a small business,” and 27% reported, “We need a loan but haven’t tried because we don’t think we can get one.” In a healthy economic expansion, these two groups should total no more than 10% to 15%.

There are a number of economic and political issues making up the loose gravel that the U.S. economy is currently standing on as it struggles to find growth footing. But an improving banking picture for small businesses is definitely a good sign of economic healing and expansion potential.

Every small business needs a good banking relationship, so keep trying until you get one. But remember, the perfect form of capital is retained earnings, because it is profits, produced from sales you make to customers, that you were disciplined enough to leave in the business.

Retained earnings will make your banker very happy.

I talked with Mike Menzies, President and CEO of Easton Bank & Trust in Easton, Maryland, recently about the key elements of a successful banking relationship.

Click here to listen or download our conversation.

Check out more great SBA content HERE!

The facts on small business and banks

Published
by
Jim Blasingame
on October 24, 2011
in Banking - Investors - Capital, Cashflow - Credit - Collections and Finance - Accounting - Taxes
. 0 Comments

Listening to pundits and politicians, you’d think banks were intentionally hurting small businesses and the economy. When a Senator or “Talking Head” says, “This economy needs banks to start lending to small businesses again,” you might think they know what they’re talking about. They don’t.

The NFIB Small Business Optimism Index is the gold standard of small business surveys. If you track the monthly results of Dr. Bill Dunkelberg’s work on his Index, as I have on my radio program for more than a decade, you will see that throughout the entire period since the Great Recession began in 2008, more than 90% of small business owners have consistently reported that their “credit needs are being met.”

It’s true that the big banks curtailed lending while getting their own balance sheets under control. But out here on Main Street USA, if your small business qualifies for credit and wants it, you can get it from either an independent community bank or credit union, if not from one of the national banks. The problem is not credit availability; it’s demand. Like everybody else on Planet Earth, small businesses are deleveraging.

We wanted to know a bit more about the banking relationships of small business owners, so recently, on our website and weekly e-newsletter, we asked this question: “What type of bank do you do business with?” Here’s what we learned:

Our respondents who do business with a “large regional or national bank,” were barely more than those who said they trade with a “local community bank,” coming in at 38% and 36%, respectively. The third option of our poll, “a local credit union” – which are increasingly proving their relevance to small businesses – was chosen by 15% of our sample. And finally, a little more than one-in-ten said they needed a bank.

A week later, in a companion poll, we asked our small business audience: “Are you happy with your current banking relationship?” Seven out of ten said yes and 17% said no. And the group who said they “would change banks if they could,” came in at 13%.

The results of our unscientific online polls are backed up by the findings of several highly regarded surveys, like Dunkelberg’s NFIB Index: Main Street small businesses are dealing with many challenges in this not-so-great recovery, but access to credit is not one of them.

Uncertainty is suppressing small business loan demand, not banks.

I talked more about banking relationships recently on The Small Business Advocate Show. Click here to listen or download my conversation on how happy small businesses are with their banks.

For more great SBA content, click HERE!

Is barter right for your small business?

Published
by
Jim Blasingame
on August 15, 2011
in Cashflow - Credit - Collections and Management Fundamentals
. 0 Comments

In his landmark 1776 book, Wealth of Nations, Adam Smith called money one of the three great inventions, including the written word and mathematics. Money has helped businesses grow more efficiently, markets expand more dynamically and nations trade more effectively.

But there is something still in use in the marketplace today that humans used for millennia before money: barter. Indeed, barter birthed the marketplace.

In simple terms, barter is the direct and mutual exchange of goods and/or services between two parties. The Latin term, quid pro quo, “something for something,” is the original definition of barter. Think of the frontier doctor who took a chicken and a sack of potatoes for delivering a baby.

Over the past hundred years or so, a combination of the ubiquity of money and the growth of financial tools and resources has relegated barter to the marketplace minor leagues. Nevertheless, barter is still being conducted, primarily between businesses that know each other and have a mutual need for what the other offers. For example, a printer barters a brochure job for food from a local restaurant. Or a lawyer accepts personal and/or real assets from a client in barter for legal representation.

Small business should look for barter opportunities. For example, with too much inventory and too little cash, barter can be part of a survival strategy in a bad economy. Slow-turning goods become the equivalent of cash to pay for something that in a better economy would have been covered by the cash flow and profits from customer sales. Plus, there are tax advantages with barter, but also tax reporting requirements. So consult a tax professional before bartering.

As handy as barter can be, it does have three inherent challenges that money was invented to address:

  1. Party familiarity

  2. Timing

  3. Relative value

But a few entrepreneurs have created something to overcome these limitations in much the same way that money does, while keeping the advantages of barter. They’re called barter networks or exchanges.

A barter network becomes the nexus between parties by offering services that address the challenges mentioned, including:

  1. barter credits that can be used any time in exchange for

  2. a variety of goods and services from a catalog the networks has aggregated from and for its members.

Before using a barter network, remember you may be exchanging assets today for future redemption. So conduct the due diligence to make sure the barter network has experience and a good track record.

Consider barter in your economic recovery plans.

On my small business radio program, The Small Business Advocate Show, I interviewed Steve Bolles, founder and president of Merchants Barter Exchange. In this interview, Steve talked about some of the reasons that barter could be just the right tool for small businesses experiencing cash flow challenges or other issues in this recovering economy. Plus, we talked about some of the details that are required to pull off a successful barter, including through a barter network and, of course, the tax details. Take a few minutes to listen to this conversation and, as always, be sure to leave your own thoughts. Listen Live! Download, Too!

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