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.
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.
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.
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.
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 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.
How to double business profits and pay no federal tax
Increasing profits and paying nothing in federal tax may sound like a pipe dream. Surely it’s impossible, right? Wrong, a company is already leading the way here and has provided proof that this is possible. Indeed, the richest man in the world pays nothing in federal tax. It’s shocking, it’s perplexing and it’s completely true. We’re of course referring to Amazon and the recent news that the business pays $0.
How on earth does this work and what can you learn from this? Let’s start with the definition of ‘Federal Tax’ as there are many different types of taxes.
Federal Tax is a tax on income to pay for the resources used by the country. Individuals, business, trusts, and other legal structures aka entities incur the marginal tax rate depending on earnings in a financial year, the rate is applied to every dollar you earn.
Individuals are taxed at source and at a minimum of 10% or as much as 39.6% depending on, which income bracket your total income sits.
Businesses have more flexibility and their rate could be somewhere between 21% and 35%. More on Federal Tax here. However as we’ve alluded to, there are ways to end up paying $0 tax just like Amazon, so here’s how they’ve managed it in 2019.
The Success Of The Company
Amazon’s record is incredibly impressive, regardless of which way you slice it. Between 2017 and 2018 the profits of the business actually doubled from $5.6 billion to $11.2 billion! The company is also currently valued at a total of $1 trillion. So, you would think that the business pays a fair level of tax right? Well, not exactly.
The Tax Break
According to the Institute on Taxation and Economic policy Amazon reported with $129 million for a federal income tax rebate. This equalled a tax rate of -1%. To compare this, the federal corporate income tax rate is 21%.
As such, it seems that part of the reason why Amazon is profitable is because they claim various tax credits and gain tax breaks for stock options from executives.
How Is This Possible?
In 2017, the Tax Cuts and Jobs Act was put forward to encourage more corporate citizenship and corporate tax was reduced from 35% to 21%. Luckily for Amazon and various other companies, it left a variety of tax loopholes in place that could be used to cut down the level of tax paid. Essentially, companies could avoid paying state income and federal taxes on about half of their profits.
Does Amazon Pay No Taxes?
Despite claims to the contrary, Amazon does pay taxes and is not a ‘no tax’ company. Indeed, through 2017, the company paid $412 million in total taxes. This included charges consumer sales taxes where applicable.
That said, it’s true that through 2017 and 2018 the company was searching for new tax breaks. They were able to claim billions through performance-based incentives by carefully selecting where to set up their headquarters.
As such, it is unlikely that Amazon will pay any federal tax this year. At the very least, they will see a massive level of savings. While people ask why Amazon would need to go to such lengths to save money regardless of how successful your business is, higher profits are always worth striving for.
There’s a lesson to be learned here too because Amazon and other companies avoid taxes in a way that is completely legally and fits regulations. They are not breaking the law, they won’t sink their business and they will grow their profits. As such, if you are running a business, you too should be pursuing tax breaks each year and cut down what you owe as much as possible. After all, if Amazon is taking these steps why shouldn’t you?
Why Entrepreneurs Often Fail
Entrepreneur is an interesting word. It conjures up thoughts of bravery and superior business wisdom. It’s a person who sees in something what most of us fail to see.
Take that idea, develop it and in turn found a business on it. When it works, it’s pure genius, and we’re in awe of their aptitude. However most businesses fail so most Entrepreneurs are less skilled than we give them credit for.
Bravery in launching a new business is really just a higher level of risk taking and with good debt it’s more acceptable. Good debt is a loan that used to create a revenue, i.e. it’s an investment used to generate and grow an income. Here’s a more extensive definition of good debt.
So the Entrepreneur or business will increase its borrowings via a line of credit, or even a home loan to invest in its products or people with the objective of earning more revenue.
The risky part of borrowing is the end goal is speculative i.e. its usually a well thought out plan but it’s not actually happened and numbers have to work out, i.e. the increase in revenue due to the loan, far exceeds the costs of the loan and other additional expenses, like more staff or systems.
Entrepreneurs have an appetite for risk and as mentioned it sometimes works out but mostly it doesn’t so it’s important to understand the pros and cons of business loans.
Once the good debt options run out, then the only way to go is bad debt loans and this is when it can all spiral downwards for businesses. Bad debt loans are essentially non income producing so they’re a liability. The loans can not be leveraged to make money. They can be written off against taxes and there is also bad debt recovery which is another subject altogether.
Startups fail for many of the same reasons including:
- Lack of working capital – affecting operations
- Liquidity issues with cash flow – struggling to pay staff, suppliers
- Business growing too quickly – not enough resources to deliver on orders
- Ego – too big to fail
Often it’s not just one thing either but a combo of challenges that just become too much to handle alone. The smart operators don’t go it alone though they have mentors.
Entrepreneurs Need Mentors Too
Behind every good Entrepreneur is a mentor. Yes this is not the adage you were expecting but it works.
Mentors keep us in check. They’re our sounding boards, listening to our rants and raves. Offering an objective viewpoint and advice on the direction we should take.
Of course no one person can be trusted to do the lot so more than one mentor is recommended. The experience and trusted authority from mentorship is recognised in just about all great leaders. Think of the big names in business today and they’ll say they have amazing mentors.
Facebook’s Mark Zuckerberg had Steve Jobs, and Bill Gate had Warren Buffett.
Maybe this is where some Entrepreneurs go wrong? They either don’t have mentors or they don’t use them enough.
Neo or Ethereum – where is your investment safer
The advent of cryptocurrencies and its stellar rise, despite relative infancy and new technology, have arguably impacted the marketing world significantly. Booming in the previous year, 2017 saw a rush of millions of money poured into the cryptocurrency market. And considering its continuously growing network, there is no sign that 2018 will be any different.
Over the last few years, cryptocurrencies and other blockchain projects were able to gain very impressive returns that helped investors to be ridiculously successful. However, inevitably, many had experienced its dramatic declines as well. But despite the risk, more and more people are looking for the next big thing in the market which has the highest potential to multiply ones’ investment. And while there are hundreds of cryptocurrencies, that although represent opportunities to achieve sustainable growth, are also highly risky; and from which it is quite hard to predict which one gives the best result, this article will focus on the two of the most popular alternate coins (altcoins) of today – Ethereum and NEO.
Ethereum and NEO are both high-profile altcoins with massive community support and which many investors swear by one or the other. However, as “the competition for the coin is expected to become tougher in 2018 as new players enter the domain”, the question of whether which of the two will be left holding the scepter becomes less important – but rather, where will investments be safer.
To attempt to answer this question, let’s take a closer look at the two altcoins.
Ethereum versus NEO: Philosophical Differences
Ethereum, according to its website, is “a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.”
NEO, on the other hand, is defined as a “non-profit community-based blockchain project that utilizes blockchain technology and digital identity to digitize assets, to automate the management of digital assets using smart contracts, and to realize a ‘smart economy’ with a distributed network.”
These respective definitions might sound remarkably similar – because, in many ways, they are. That is, both of them “run on a custom built block-chain that can move value around and represent the ownership of the property.”
Moreover, at first glance, these respective definitions might also imply that the two altcoins share the same objectives as both are aiming to dominate the cryptocurrency market by playing the similar roles of being the blockchain platforms for the new internet (or platforms that offer decentralized functionalities) such as Decentralized Applications (DApps), Initial Coin Offerings (ICO), and smart contracts. However, they aren’t, as there are subtle differences:
Ethereum’s goal is to develop its platform in response to new demands – that is, consolidating its role as the go-to platform for ICO’s. Whilst, NEO’s goal is mostly focused on developing its platform for future demands by realizing a so-called “smart economy” that will feature digitized physical assets which can be sold, traded, and leveraged through smart contracts.
Ethereum versus NEO: Backing and Partnership Differences
Because Ethereum is a certified government-agnostic, it is supported by some of the biggest global corporate names such as Enterprise Ethereum Alliance – making it enjoy popularity tointernational audience and thus, much larger support from the tech community.
All the same with NEO – the Chinese government might have gone far as to ban the ICO’s, but NEO remains to be China-based and Chinese-focused. Despite the country being seemingly unfriendly to the industry, NEO manages to receive backing from national banks and states – which allows it to capitalize on the huge Chinese market. Furthermore, it is also supported by Alibaba and Microsoft.
Ethereum versus NEO: Target Market Differences
There can be no doubt that Ethereum and NEO have the huge potential to become the next Bitcoin. Due to the impressive capabilities of their pluses to outweigh the minuses, both of which are continuously gaining popularity especially in comparison to other cryptocurrencies in the market.
Ethereum, which although has already been adopted by blockchain startups worldwide, is proportionally concentrated in the Western countries. Meanwhile, NEO is largely capitalizing in China.
Looking closely, Ethereum seems to benefit from a certain fallacy of thought that “West is the best” – which is quite true in terms of Western products catering to Western markets. But many fail to understand that Chinese investors are less likely to adopt Western technologies as they (like many East Asians) are far readier to support home-grown technology taking pride in and loyalty to national products.
NEO, however, might be having the advantage of a technologically-driven population that is nearly 1.4 billion people strong; not to mention that Chinese investors make up a very large percentage of the world’s cryptocurrency investors. But one should not fail to consider that the involvement of the Chinese government, which might have made NEO a state-mandated currency, plays a significant role in building a loyal following from Chinese investors.
Ethereum versus NEO: Where is your investment safer?
With the capabilities (i.e., both projects are open source and has massive community support) and differences (i.e., serving different markets and the opposite directions their visions are taking) that these altcoins have, should there really be a question of which among Ethereum and NEO is better, or should you invest in both?
While NEO appears and is turning out to be more investment-worthy – focusing on creating a “smart economy”, it should not be forgotten that Ethereum still holds the position of being the second most popular cryptocurrency in the world with a total market cap of $105 billion as compared to NEO’s $9 billion (as of January 25, 2018).
Thus, given that we are dealing with two very robust technologies, it might be better to conclude that there is certainly space aplenty for both altcoins to coexist.
And as to where your investment will be safer, perhaps the most suitable answer is in the altcoin where you can best tolerate the risk and that you understand well. There are more and more investors getting on board who often have a very limited understanding of the technicalities of the cryptocurrency they support, ending up investing based on brand loyalty and hearsays and even merely along the lines “Ethereum of China” NEO vs Ethereum.
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