Small-Business Finance: How to Keep your Business Soaring

Starting your own business can be like jumping off a cliff. Keeping that business going requires you build yourself a good set of wings. Some folks build them on solid ground, calculating and testing before ever approaching the edge. Others jump with faith and build their wings as they fall. Either way, those without wings are in for a pretty hard landing. Finances, money, the economy of an industry are what keep a business afloat on clam desert thermals, rather than crashing to the hardpan below.

Good finances begin long before you hang the sign for your new business, long before you ever attract your first customer. If you’re like most business people, you have an area of expertise, a great idea, and a burning desire to share your knowledge or ideas. That expertise may not include business savvy. That passion may blind you to your own limitations Rounding up a stable of experts to supplement your knowledge is a good idea, Listening to those experts is even a better one. But don’t wait until you’re having troubles to seek out advisors, Assemble your team before you even begin. “Start off on the right foot,” says Patricia Brioady, partner with Strong, McPherson & Company in Reno. According to Sharolyn Craft, the UNLV/NSBDC Regional Director for the Nevada Small Business Development Center (NSBDC), a good team of professionals should include people from the fields of law, accounting, banking, insurance, and marketing. They will not be employees, however, only advisors, people to go to with the inevitable questions running a business prompts.

When searching for the right advisors. Brioady suggests you start by asking friends and people within the industry you trust for recommendations. If you cant find advisors that way, check the phone book and start making appointments. Interview various candidates and let your gut lead the way. “A personality conflict in the beginning, ” Brioady warns, “won’t get better.” Be on the alert for advice that makes you uncomfortable, such as insisting you shouldn’t be the sole proprietor, without explaining why. However, don’t rely on everyone else for business knowledge. You must be educated on such subjects as cash flow, taxes, regulations, and record keeping. Craft says many businesses get so involved with the technical aspects, they don’t take time out to keep up with management skills, and that can lead to disaster.

Another common problem for the growing business is to ignore cash flow. The best way to keep your finances within your control is to keep them within your sight. . Pay attention to your money, where it goes, when, where it comes from, how often. Keeping your own records or at least writing and signing your own checks can keep you in touch with the reality of your cash flow. Brioady suggests starting off spending 10 minutes a day on your records If you let the records build up you may be faced with hours you can’t spare so do it now and do it regularly Not only will you stay on top of your financial commitments and concerns, any questions you have will be fresh in your mind and more readily solved. Farther down the road, you may switch to a record system of every few days or even once a week, but you will still need to set that time aside. You may even reach a point where a better use of your time is hiring someone to keep your books, but make sure you are still vigilant — signing checks or balancing records — so you are constantly aware of your finances,

Keeping track of your money yourself also decreases opportunities for theft. Craft says embezzlement is one of the biggest problems she sees in businesses. “You should be doing your own reconciliation of checking accounts,” she says, “and notify the bank immediately of any discrepancies There s a very small window of time in which you can notify.” Make sure all bank statements and receivables come to you; be hands on. Go through everything at least once a month. If you simply don t have that kind of time make sure duties are separated and no one person has access to all accounts. “Most money is stolen going out of the company,” says Craft, “not coming in.”

Monitoring your finances also facilitates better knowledge of your profit margin. If you don’t keep track, you might not notice when or if that margin changes. Newton Freeman, partner with Freeman & Williams, LLP in Carson City, says, “If you don’t change prices to reflect a change in cost, your business will be in trouble.” A clear understanding of cash flow is a must. Freeman says a business can easily go belly up in good times because it is growing too fast. Accountants can take a while to collect and you have to pay employees expenses right now. You may be making sales, but still have no money on hand because of the lag, A common, but illegal. solution to the lag is to use employee trust fund monies to pay the bills. Don’t be tempted to use that money rather than deposit it. It is literally stealing from your employees. Rea Melanson, CPA, president of Melanson & Murray in Las Vegas, warns that IRS penalties for missing those deposits can be crippling if they don’t flat-out shut you down.

A better solution to dealing with the lag between receivables and payables is to work with vendors and creditors. Leslie Daane, director of taxation for Barnard, Vogler & Co. in Reno, says make sure you are setting up schedules for payments that benefit your business. Don’t pay too early or too late, and always see if you can get a discount or some other benefit for paying early. The ideal is to pay early enough to get a discount, but not so early that you are using up other cash needs. Freeman says, “You have to be creative to be competitive,” and suggests not only working with suppliers, but also with customers (offer the same incentives for early payment that you are seeking from vendors) and employees (further incentive arrangements).

Times have changed in the professional fields. Freeman says, “Don’t assume when someone tells you the price for a service or product that there is no room for negotiation.” Even banks and insurance companies will negotiate these days. Don’t be afraid to ask how to get professional fees reduced. For example, some accountants will charge you less if you bring your information to them in their desired format. Offer progressive billing or progressive payments so that costs aren’t coming all at once. Don’t be afraid to discuss your payment cycles with vendors so you can align your timing of payments with them. Craft says she tried to psychologically give business owners permission to be creative. “I always say if it’s legal and ethical you’d better try it,” she notes. It is time to stop looking at how things have been done in the past and find new solutions to the challenges of business today.

Daane says the most common mistakes she sees businesses make with their finances is thinking that cast equates to income. “They find they end up with taxes due at the end of the year,” she says, “and realize they don’t have the cast to pay.” It helps to always look ahead.

Don’t forget about the future. Take time to make projections for several years down the road, Figure out where you want to be and what you’re going to need to get there. Freeman suggests inclusion of critical dates for capital acquisitions, sales trends, and cash flow in your analyses. If you know you are going to be in a cash flow need, make arrangements with a bank so you won’t be caught in a short-term cycle. Get that line of credit, but don’t use it for anything other than the need for which you set tip. You may even have to slow down your business if you can’t afford to incur the costs of inventory and the like.

Outgrowing internally generated cash flow can be a big problem for small businesses. In order to access loans or other needs in time to keep your business running, you must anticipate. There is little room for reacting to the crises of the day, rather than being proactive and planning ahead. “Many owners’ goal is to be out of debt?’ says Craft, “instead, they should consider how to manage or leverage debt for the best interests of the firm?’ This might mean taking out loans or leasing rather than buying equipment or facilities

Capital expenditures and asset purchases need to be thought out carefully, in terms of cost, long-term needs, even timing. Freeman says the foundation for a thriving business lies in astutely recognizing cash flow needs as the company grows and avoiding excessive debt. “Look for ways to conserve cash flow,” he says, “and fuel that engine.” He gives the example of a business trying to expand that purchases a building. This impacts the ability to obtain other credit. It may be better to rent or enter in a lease in order to leave the balance sheet clean for a line of credit.

Be vigilant about the timing of purchases. You don’t want to accumulate assets in the last quarter of the year — you will lose out on depreciation. And don’t be tempted to buy things like boats or planes that aren’t a real advantage to the company. These sorts of purchases clutter up the corporation, and company owners end up having to backtrack and get rid of them when selling the company or going public Stay away from purchases that don’t profit the company because they can affect your ability to negotiate a sale.

Artificial growth leads to huge intro-structure. You may be growing just because you’re the low price on the market. That won’t last. Next year someone else will be lower and you could end up with buildings, equipment or staff you can no longer support. Beware of long-term commitment, during short-term growth spurts, warns Freeman. Growth for the sake of growth isn’t healthy. Sometimes slower is better.

While you’re putting all this work into your business, don’t forget about the impact of politics. Warren Hardy, state director of the National Federation of Independent Businesses, says the organization has set its mission to watch your back for you. The organization lobbies at state and national levels, answers questions and produces newsletters and fact sheets to make sure the interests of small businesses are served and to notify business owners of potential or real impacts.

So start by getting the knowledge you need up front, be it through your own expertise or that of others. Then keep careful records and pay attention to the day-to-day cash flow of your operation. Be creative. Plan for the future and don’t get suckered in by short-term success. These simple keys are the framework for your wings. How high you soar is entirely up to you.