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How Do I Manage Business Cashflow?

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Keeping a tight control of your cashflow is the single most important thing you can do when running a business; particularly when you are just starting out. All companies need cash to survive – and thrive – and meeting your financial obligations and having money to invest in opportunities is critical. But how do you manage your cashflow properly, and what are the best methods of doing so? We’re going to reveal all in our guide to managing cashflow – read on to find out everything you need to know.

What is cashflow?

Understanding cashflow is the first thing you need to do if you want to know how to manage it properly. Cashflow is the amount of money that comes in and goes out of our business, and you need to track it on your cashflow statement. A positive cashflow is the ideal, as it means you have more money coming into your business than leaving it, although many startups will usually have a negative cashflow – which means there is more money going out of your business. However, having a positive cashflow doesn’t necessarily say that you are turning a profit, as that money coming into your business could also include borrowing.

Working out a benchmark

So, when it comes to managing your cashflow, the first important step is to work out a reference point – or breakeven point. It’s this point where your business becomes profitable, and it’s an important goal to set for any new business. Not only will it help you achieve a level of safety for your business, but this benchmark or breakeven point is also a way of predicting your cashflow in the future, and can help with your financial planning. The general rules of cashflow are relatively straightforward: know where you are at right now; know where you will be in six months time. You can’t possibly know either of these if you don’t work out your breakeven point first.

Getting paid

Having access to cash is vital for your business, so it’s important to ensure you are getting what you are due as fast as possible. In the vast majority of cases, this task involves getting money from clients and customers. According to research, the average customer pays around two weeks late, so it’s easy to see where many of your problems might arise from. Never invoice people and then leave them to it – remind them regularly and be proactive in chasing them up. You can sue automatic emails at regular intervals before a due date, and if that time passes with no payment, you can also consider imposing late payment fees. Don’t be afraid of chasing money – you have a right to be paid for your work, and the longer a customer leaves it, the more exposure your business will have to risk.

Paying others

Of course, the money that goes out of your business also has an impact on your cashflow, And whereas you should be encouraging your customers to pay straight away, you should be avoiding paying your suppliers and other payables for as long as possible. We’re not suggesting missing deadlines, of course, as that will attract fines. But by establishing longer credit terms – changing a 60-day payment to a 90-day, for example – and you will find that your cash flow improves by a significant amount.

Quick turnover

If your business buys inventory, it’s vital to ensure that you are making sensible decisions about how you buy, store, and manage it. Don’t forget, everything you buy will impact on your cashflow, as it ties up valuable money that you can’t use for meeting your financial obligations or investing in improvements. The fundamental principle of inventory management is to order stock in quantities that you can sell on quickly, without impacting your sales with out of stock issues. It’s a tricky balance to strike, but absolutely essential if you don’t want your cash tied up in inventory that lingers around your business for months on end.

Build reserves

At some point in time, all businesses will experience periods of a shortfall when it comes to cashflow. And one of the best ways of protecting against such occasions is to ensure that you have some reserves put aside – emergency savings if you like. Of course, this can be difficult to achieve when you are just starting out, but it’s something you need to consider if you want to avoid potentially dangerous financial situations arising.

Borrowing

Borrowing money for your business is a great way of improving your cashflow, but bear in mind that you have to counter this by being able to turn a profit. Look at something like a cashflow loan if you need to fund a new marketing campaign that can pretty much guarantee results. While these types of loans can be expensive if you don’t pay them back on time, the funding they deliver can help you achieve your goals far more quickly than saving a little each month and raising them yourself. Small business loans are also an interesting idea, and as long as you research the market and get the lowest interest possible, they can provide you with vital funding to help you pay for your growth strategies.

Boost sales to current customers

Acquiring new customers is an expensive task, both regarding resources and money. So, if you want to increase sales to improve your cashflow, you are far better off trying to sell more to your current customers. Research suggests it is up to six times cheaper to sell to old clients, so it’s easy to see how much value it can bring to your business. Look at what people are buying, and spend some time analyzing their shopping habits. Is there a way of enticing them back with discounts or better deals? However, one thing to bear in mind is that you have to focus on getting money quickly – don’t allow your credit out to build up, or it will just cause you further cashflow issues. The idea here is to make money, not increase your accounts receivable.

Additional Resources

10 Tips for Better Managing Cash Flow
Running a Small Business? Stay Ahead of Cash Flow Woes with These 5 Tips

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Finance

Financing A Business With A Home Equity Loan

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Finding funds for a business is no easy task. Qualifying for a business loan is not guaranteed; therefore many companies leverage their owners’ assets like the family home to raise the funds they require in their enterprise.

There are many ways to use personally guaranteed funds too and one option is what’s called a home equity loan or home equity line of credit, These loans can also be ideal for debt consolidation of say high-interest borrowing like credit cards, personal and short term loans but in this blog post we’re focusing on how these loans work for businesses.

There are many more obstacles or hoops to jump through when seeking an actual business loan and often it’s the financial statements of the business that fail to pass the lending criteria due to the startup phase requiring more investment and not showing a profit.

Entrepreneurs starting out, are therefore renown for sourcing investment from wherever they can get it. The credit card has been the go-to source for funds, but the interest rates are very high, so it’s not a long term borrowing solution for a business.

Before long, the owner is seeking other sources to keep the business afloat or to grow it. They may take out personal loans but before long their requirements exceed what they borrow without additional security so this is where many use their home.

As a business owner, it may make perfect sense to use a home equity line of credit to draw down funds for the business and then repay them when in lump sums and repeat as and when required. So what is a HELOC?

HELOC

This type of loan allows you to have an open line of credit on the equity you have in your property.

HELOC’s has longer repayment periods that can be 10 – 20 years much like a usual mortgage and as the property owner you can borrow up to 85% of the home’s value minus what you may owe it. For example, if your home is valued at $750,000 and you have a mortgage of $250,000 on it already. Your line of credit may be as much as $425,000.

HELOC rates are higher than your standard mortgage rate, so it’s very much ‘caveat emptor’ or buyer beware, get professional expert advice from your accountant, financial advisor and maybe also your lawyer. Remember all loan agreements are legal documents, and they have terms and conditions that the borrower must comply.

There are many other ways to fund your business, including angel investors, offering shareholdings, so while using the equity in your home is an option it may not be the best way forward as the risk is your business cannot pay back what it’s borrowed, and you are personally liable to repay it or lose it.

Remember it is your equity and if your business borrows too much of it and can not repay it, and the lender calls in the loan it could be that you are forced to sell your home. It’s a dreary thought, but it’s better to know the pros and cons when borrowing money for any venture.

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Finance

Young Money: How To Fund A Startup

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Have you got a great idea for a business and now you want to make it happen? You’re not alone. While every business with the idea, commercialising it is a whole new site of skills. Getting a startup business up and running is a challenge for anyone who has not done it before.

Entrepreneurs don’t usually have the ideas, i.e. they’re not the creative talent. They’re the people, the ideas creators turn to, when they want to see how far they can take the idea and turn it into a viable business.

The start up phase of any business involves a lot of working hard, but not exclusively, it also requires investment. Seed money can come from various sources. Without the money, to get started and provide ongoing investment as the business shows promise, your venture may take too long to mature and a competitor takes your place in the eye of the consumer. So where can the investment come from?

What’s Available?

There are a lot of different funding options available for small businesses, and they all offer their benefits. You can find some examples of the most popular methods below, along with some additional information to help you choose which route might be best for you.

Personal Finance/Loans

You will need to invest in yourself, i.e. put some of your own money in. If you have not got savings, consider other options, like your home loan. This is a hugely popular option for start ups that fail to get funding from other sources. Caveat Emptor: Always seek professional advice from your accountant, lawyer etc before taking on debt.

So if you have money saved up or can get a loan from a bank, funding your business will be a fast process. As aforementioned, there will be a personal risk here, but you won’t have to prove to anyone that your business will work, making it great for those who can’t get further than a concept without some capital.

Business Loans

Some banks and governments will offer loans to new businesses. In most cases, you will have to have existing cash flow to make this work, limiting the successful startups will have with it.

Angel Investors

If you can convince an investor with the money to back your idea, you won’t have to look at other types of funding for business, as you will have both money and support. This isn’t always easy to find, and you will have to prove that your idea is worth their time, making it hard for those with nothing but a concept.

Personal Risk vs. Sacrificing Freedom

The choice you make when you’re choosing how your company will be funded largely rests on what is more important to you.

If you are willing to take on personal risk, using your own money can be a great way to go, as it will give you all the freedom you need to build the business you’ve been dreaming about.

For those who would rather keep their money safe, making a couple of compromises along the way can be a small price to pay for an investor or venture capital. This is a very personal decision to make.

Why Isn’t The Bank An Option?

A lot of startups find disappointment when they approach a bank for a loan to get themselves off the ground.

Unfortunately, history has shown that being too willing to offer new businesses money can result in heavy losses, and banks have learned for their mistakes. Before you can convince a company like this to support your venture, you will need to prove that it can make enough to pay it back, and most startups just don’t have the income.

Choosing the funding option which you use for your startup has always been a challenge. It’s becoming more common to find businesses which cost nearly nothing to get started, opening the doors to another idea for you to consider.

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Finance

Best Cryptocurrency to Buy – Which Is Best?

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A lot of people might say that cryptocurrency’s big moment has ended. After the sharp rise and precipitous fall of bitcoin, many strait laced investors soured on the idea of crypto investment. Crypto’s 15 minutes of fame were over, the thinking was, and it was time to move your money back to safer, and more standard commodities.

This, however, is just not true. Cryptocurrency continues to be a sound investment, if you know the best cryptocurrency to invest in. We’ve compiled a list of four great picks below.

Ethereum

Ethereum is sometimes thought of as bitcoin’s chief rival, which perhaps makes it the second-most famous cryptocurrency. Ethereum is also commonly thought of as an expansion of blockchain technology beyond bitcoin. It is traded as a cryptocurrency, but it also has value as a decentralized computing platform.

Ethereum includes a programming language that runs on blockchain. So, it is used by developers to create apps, including health and security infrastructure, music licensing services, and even anonymous browsers. Ownership of an Ethereum token is recorded on the shared blockchain ledger, as it would be on any cryptocurrency.

However, Ethereum expands this practice to record the ownership of copyrights, music, documents, financial instruments: anything imaginable. By purchasing Ethereum, you are investing in this network, rather than the security as such. For this reason, Ethereum is an excellent investment and one that the savvy investor should be scoping out.

Bitcoin

For fame and notoriety among the cryptocurrencies, none can match bitcoin, the original cryptocurrency in many people’s minds. Now more than a decade old (the mysterious Satoshi Nakamoto published the bitcoin white paper in 2008), bitcoin has had its share of ups and downs.

For the savvy investor, though, bitcoin can still be a sound investment. After the massive — and massively famous — December 2017 peak, the price of bitcoin has held steady between $3,000 and $6,000 per coin. As bitcoin matures as a security, it is looking more and more like a place to park your money, rather than the white-hot investment it was two years ago. This is not a downside, because investors need (and will take) both options.

Dogecoin

It started as a joke — a play on the classic “doge” meme. But since its inception in 2013, Dogecoin has grown to a market cap of over $312 million dollars in April 2019, with values soaring as high as $2 billion in January of 2018. Dogecoin’s value fluctuations will be familiar to anybody who has traded in penny stocks. It maintains a steady mean value, punctuated by regular spikes in its price.

The trick, as it were, is to buy it just after a spike in its price, and to sell it during the next spike. While Dogecoins are not a strong long-term investment, they can be a decent swing investment if you have the time and energy to monitor them. The origins may be silly, but the money is very real.

Litecoin

Litecoin is a cryptocurrency specifically developed for zero-cost payments. Litecoin was developed to have a faster transaction confirmation than Bitcoin. This emphasis on fast, secure transactions has made Litecoin one of the most popular coins with businesses interested in security.

For this reason, the value of a single Litecoin has risen from $30 to $78 in the past six months, well below the mean value. This is the perfect opportunity for an investor to swoop in. As security becomes increasingly important to businesses across the board, Litecoin begins to look like a better opportunity than ever.

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