Author Archives: Robyn Barrett

Robyn Barrett

About Robyn Barrett

Robyn Barrett is founder and managing member of FSW Funding, formerly Factors Southwest LLC, specializing in factoring financing for small to mid-size companies.

taxes

Stop leaks causing accounts payable errors

Understandably, most companies are focused on their incoming cash flow and the bottom line. As a result, accounts receivable departments, or incoming balances, tend to get all the attention. Consider what companies might discover if they took a closer look at accounts payable. The management of accounts payable should also be considered a priority. When ignored or overlooked, issues like duplicate payments and contract non-compliance can erode the bottom line.

As companies prepare for year-end and begin looking to 2014, think about implementing new practices and procedures to help get an even better handle on the business.

AP post audit services

Many companies use third party firms to provide post audit recovery services. A post audit service by a third party firm examines accounts payable transactions after the check has been processed. The auditor reviews transactions after software exposes errors through the data mining function. These errors are examined and validated with related documents. When a claim is presented to the client, the auditor has the responsibility to follow-up and answers any of the vendor’s questions. The auditor collects his contingency fee after the claim is settled.

Post audit software

Post-audit software also can be purchased and used internally by the accounts payable staff, eliminating the cost of external audits. This software can range in price depending on the scope and the industry. Most programs use benchmarks, controls and analytics to discover discrepancies. Many industries have specialized needs such as the retail and beverage distribution industry where duplicate payments are more prevalent.

Streamline accounts payable

Third party services and audit software can be cost prohibitive for most small business. For a less expensive, but viable solution, a small business can reorganize the accounts payable process with checks and balance to reduce the possibility of duplicate payments, fraudulent bills and employee embezzlement. One employee can process and print a check, but another employee should be required to review and sign it. This dual duty can be incorporated into most basic business accounting software so employees can only access and perform assigned functions. For checks that exceed a predetermined amount, requiring a second signature is another good practice. Separating the process of adding a new supplier to your system from the ability to issue payment is also advised.

Implementing checks and balances as a part of your company procedures will help catch errors and improve controls. Regardless of company size or revenues, a post audit or streamlining of the accounts payable system should be on the to do list. After all, recovering funds that were paid in error, preventing future errors, and a more confident AP management team will inevitably increase the bottom line..

Sustainable Banks, Green Banking

How accounting can add to the bottom line

In today’s world, where companies are evaluating every aspect of business to try to cut costs, few are looking at their accounting departments for ways to save money. The billing process is a basic and necessary function of accounting, and as a result, its potential impact on a company’s bottom line is often overlooked or undervalued.  Before reducing staff or cutting the marketing budget further, consider a few strategic steps accounting can take to improve the bottom line.

Automate the process

Implementing AP Automation or e-invoicing provides a number of operational and financial benefits. It can reduce costs associated with billing and is more efficient than paper-based invoicing. It also allows accounting to capture discounts on payables and speed up receivables, while reducing errors and maintaining a fully auditable trail. E-invoicing saves money on the cost of paper and postage, reduces the need for physical storage and cuts operating costs associated with filing and searching for misfiled invoices.

Update for accuracy

Whenever there is a price or rate adjustment, it is important to ensure the new rates are immediately updated in the accounting system. Keeping rates and prices current in the system allows the company to have a more accurate picture of payables and receivables. It also eliminates the need for accounting to go back and make corrections to the system, issue corrected bills to customers or redo checks for employees.

Request discounts

Paying bills on time improves your reputation as a vendor and your credit rating, which offers a variety of benefits, including access to lower interest rates.  Paying bills on time can also provide the opportunity for cash discounts and reduce costs resulting from late payment penalties.  Payable departments taking advantage of a discount term of 1/10 net 30 will return an annualized 18 percent.

Charge late fees

Late fees are applied to encourage customers to pay promptly.  While the accounting department should strive to make payables on a timely basis to avoid incurring late fees, it may be wise to institute a late fee policy for your own customers.  Late fees can quickly accumulate in your favor. If customers aren’t going to pay on time, you may as well be compensated for financing their business.

Take credit

Many business-to-business companies traditionally take check or cash payments on invoices, but more and more are now turning to credit card or virtual payments.  While there are fees associated with these options, they offer ease to your customers and encourage prompt payment, so you receive your money more quickly. For clients or customers with recurring payments, like monthly subscriptions, it is extremely efficient. Credit card or virtual payment systems can also result in increased sales, because customers are better able to make impulse purchases, paying instantly. Accepting credit cards also eliminates the time and costs resulting from bounced checks.

Managers have a tendency to first look how and where the company can cut back, in order to improve its bottom line. By first taking a look at how the accounting department is functioning, and what its policies and procedures are in regards to billing, cash flow and profitability, companies can improve the bottom line without making any cuts at all.

deal

Checking fine print protects bottom line

Every purchase order or invoice should have them, but what are they? Terms and conditions. The fine print found at the bottom or on the backside of in invoice or purchase order, so it is often ignored. Look for it, read it, understand it.

When a company purchases goods or services, it is not uncommon to pay the bill, overlooking the fine print or statement of  Terms and Conditions.   Many don’t realize this information  explains legally binding details, including returns, warranties, waivers and limited liabilities. While more and more companies have turned to electronic invoicing, requiring the buyer to accept an agreement before signing off on a purchase, acknowledging does not necessarily mean they carefully read the information, and understood its ramifications.

What will the fine print reveal?

There are a number of important items to take not of in the Terms and Conditions. Things to look for include:

  • Invoice due dates
  • Payment discounts
  • Credit requirements
  • Cancellations
  • Payment defaults
  • Taxes
  • Returned goods
  • Inspection and acceptance
  • Contingencies
  • Collections

Why should you care?

The legal system is bogged down with companies suing each other over terms and conditions. Buyers may have conflicting terms and conditions with the seller. In order to resolve the potential problem an invoice may contain language in the agreement stating that any terms contained in the buyer’s paperwork that is inconsistent will automatically be rejected. If a conflict persists, companies then look to the courts to make a decision. This can be difficult, time consuming and costly.

What does POS mean?

When is a sale not a sale? When it is consignment, and pay on scan (POS) is just another way to say consignment. With more companies using technology and adopting electronic invoicing, pay on scan is a worthy payment condition to consider, but remember under POS terms, the seller retains the title of the goods (i.e., inventory) until the actual product sells or scans through the buyer’s register. Under this situation, vendors are paid based on the end-user sale rather than upon receipt at the warehouse. Since POS is consignment, it is not considered eligible collateral for an accounts receivable line of credit or factoring.

Keep it simple

When you are drafting terms and conditions make sure it is carefully worded and fair to both parties involved. Whether you are the buyer or the seller, the goal is to conduct business successfully with all parties involved.  If you are the seller and your terms and conditions are too aggressive, no one will want to buy from you; and you certainly don’t want to create an environment that makes the company more vulnerable to litigation on every sale.

Robyn Barrett is founder and managing member of FSW Funding, formerly Factors Southwest LLC, specializing in factor financing for small to mid-size companies. For more information, visit www.fswfunding.com.

 

iphone

Taking the accounting department mobile

According to a 2013 Bill.com survey, 66 percent of finance executives use mobile applications to approve bills and collect payments on some level.

Accounting professionals have been chained to their desktops for decades, but the increasing popularity of the cloud has allowed businesses to access critical information any time they have access to Wi-Fi. The increasing access creates an opportunity for managers to leverage today’s mobile technology and consider how it can help make accounting departments run more efficiently.

Many accounting functions are already automated.  Electronic invoicing and electronic transfer of funds are two examples of automation. While companies are embracing new technologies, many managers remain apprehensive about adopting mobile apps in their accounting department.

To help overcome any apprehension, consider the following:

Cut the chains

Mobile applications can help accounting professional’s be productive outside of the office. Many apps, such as the Bill.com app, allow users to perform critical collections processes and make important decisions with just a few clicks on a mobile device.

For example, a customer in Tokyo may be waiting on a credit approval, but because they are in a different time zone, the credit manager responsible for approving the application is not in the office. Now instead of keeping a customer waiting an additional business day, a credit manager can immediately pull the essential credit information on a smartphone or tablet, access the situation remotely and issue a credit decision.

Mobile applications can also be beneficial when a manager must be away from the office for a meeting or conference. While some tasks can certainly wait, mobile access gives  managers the flexibility to be available for urgent questions, timely applications or contracts, or in the case of a dispute that needs to be addressed quickly. Providing managers with a tablet can increase processing and keep things from getting bottlenecked.

Increase visibility

According to a 2013 Yast.com survey, employees waste an average of 74 minutes a day trying to get in contact with colleagues and customers. The time spent on cross-department calls has been found to significantly reduce productivity due to lack of information visibility.

Often times, the sales department will not have access to the system the credit department uses and sales representatives are forced to make frequent calls to credit for information updates on a current or potential client.

Mobile applications can increase visibility between departments by offering immediate, up-to-date account statuses, eliminating the need for time-consuming calls and emails. By allowing the sales department to open up the credit application on their phone or tablet, they can click on the customer-in-question and get a current status on their credit approval.

Minimize interruptions

Accounting professionals know personal interruptions all too well. It all starts with receiving a frantic call from the office because a potential client is tired of waiting to get an answer on how much credit can be extended. Being away from the computer, you have to wait for your subordinate to email multiple PDF applications and financial spreadsheets in order to expedite the decision. Advancements in smartphones and the advent of mobile accounting applications can help minimize these disruptions.

One new company called ZenCash.com has some great options that provide users the ability to manage invoices and collections, anywhere and anytime.

Companies that are still on the fence about using of mobile applications are typically concerned about a potential security threat. What many don’t realize is mobile apps are cloud-based and generally do not store sensitive or confidential information on the actual mobile device. Instead, a solution provider hosts the content and the user only allowed access from a mobile device after entering their private credentials.

Implementing any new technology or process can be challenging, but in most cases the benefits outweigh the costs. As mobile applications permeate nearly every aspect of our personal lives, more businesses are incorporating mobile solutions.

bank loan

Preparation for Loan Approval

While small business owners appear to have a good grip on managing their companies, they are often unsure about what to do to properly prepare for loan approval.. According to the Small Business Association Lending Index report, big banks approved 15.1 percent of small business loans in February 2012. While we are seeing a slight rise to 15.9 percent in February 2013, the banks may be even more likely to provide a small business loan, if business owners knew what they should present a potential lender.

The first step  is to meet with the lender’s business development officer (BDO). The job of a BDO is to make prospective borrowers feel like part of the family. Many business owners are fooled into thinking that just because the BDO likes them, they are getting the loan of their dreams. However, meeting with the BDO is just a preliminary step; the real audience to impress is the credit and loan committee of the lender

Below is a short list of information and documents every small business owner should  prepare to ensure the highest possibility of getting the loan approved:.

Prepare a short description of the business. The very first questions a lender will ask are who, what, where, when and why of your business. It may seem like common sense, but most owners forget to write a brief description of their business. The description should include short sections detailing products, services, customers, competition, history, management, and ownership. A good test of whether or not the business description works is to give it to a fifth grade student, and see if the 11 year old can describe the business to his or her friends. We may not be as smart as a fifth grader, but if an 11 year-old doesn’t get it, then the description isn’t going to work well for a lender.

Gather financial statements. Banks require three years of historical financial statements, year-to-date financials, and actual to prior year. Asset based lenders, such as a factor, will require much less historical information since they are making a credit decision based on what will happen in the future. Regardless, the financial statements need to tell a simple story so the credit staff can quickly calculate EBITDA, tangible equity, debt-to-equity, fixed charge coverage, quick ratios, and liquidation values from the sale or collection of assets. It’s even better if the financial statements include these calculations and ratios before the lender has asked.

Estimate projections. While the financial history is important, the future is paramount. Lenders want to know how the business is going to use the proceeds of the loan and what steps are taking place to ensure the business is going to grow. Banks do not want to lend to a business that is declining or on the verge of failure, so it is valuable to demonstrate signs of growth. Projections should be easy to understand and should be presented on the same basis using the same line items as the historical financial statements. Do not make up unattainable forecast sales and/or margin improvements, as lenders will see right through this, and the business owner will quickly lose any credibility.

Submit accounts receivable, accounts payable and inventory aging reports. Ask the lender if they want summary or detailed aging reports. All lenders are different and it is best to give them exactly want they want. The important detail to remember is that it is quality over quantity.

Show tax returns. Tax returns are important because they validate how reasonable the financial statements and projections actually are. Not all lenders will understand the detail in the tax returns, but you can be sure they will want them.

Provide personal financial statements
. Business owners and key members of executive management should provide personal financial statements. Banks and some asset-based lenders will require this information, and doing so will make a much better first impression when the information is provided without being asked.  After all, lenders will not be as inclined to provide a loan to a company with a management team that can’t manage their personal life.

Get the “bad” information out front and center. Whether the “bad” information is about the owner, company, or shareholders, get it all out in the open and do not wait for the lender to find it. A lender will dig up the dirt, and so it is always best to be forthcoming. Remember, all lenders have access to data bases that provide “instant background checks” on people and their businesses.

Preparation for securing a loan begins with making a good first impression. It may seem like a lot of work, but with a little forethought it can be done. Remember, even the best first impression doesn’t guaranty the loan will be approved, but it will certainly help increase the chances for approval.

 

sales.tax

Sales up, income down

Reading the latest business news, you might be surprised to find articles highlighting large corporations with increasing sales and decreasing income. This prompts the question, how is it possible for a company to sell more but make less?

Business managers often assume if the company can increase its sales, it will have an increase in income; but that is not necessarily the case. In fact, it is not as unusual as some may think for a company to see a decrease in income with an increase in sales.

The reasons are many but here are a few of the most common:

Pricing

When a company prices its products or services too low to cover its variable and fixed costs, they are creating a problem. Demand may be high at a low price point and sales may be increasing, but if the company is unable to reduce its fixed expenses, it’s a recipe for disaster.

Fixed Costs

A company with high fixed costs may find its profit margins squeezed when sales fall. When sales are up, the company’s per unit cost will decrease due to economies of scale, but this may also leave the company more vulnerable. Ultimately, it is best for a business to have as many expenses variable as possible. Variable costs allow a company greater flexibility, and the ability to offer the lowest price possible with expenses matching the sales cycle.

But how can a company convert its fixed costs into variable costs? A review of their fixed costs is the first step.

As companies grow, they have a tendency to add to staff quicker than necessary. One of a company’s largest expenses is payroll. When looking at making fixed costs variable, consider the possibility of reducing headcount and utilizing contractors instead of full-time employees.  Another option is to pay hourly instead of salary, which also allows the company to control labor costs with changes in demand.

Similarly, when a company expands production or adds to staff it usually requires more equipment. Rather than purchasing equipment, look at the options available for leasing. Lease payments are often lower than the cost of a purchase and can help conserve cash for other uses – payroll and payables.

Examine fixed costs for redundancy. Are all of the company’s fixed costs still necessary for running the operation? Can you find any duplication? Then, determine if some costs can be consolidated. For example, if the company has multiple locations, try to negotiate better pricing on services or goods used to run the business at all locations. Negotiating with one vendor to purchase material for the company, rather than allowing each location procuring their own items, can help control and reduce costs.

Sales

Selling lots of widgets may sound great, but a business needs to evaluate the profitability of each line item to determine if the sales mix actually makes good business sense. Low yielding line items should be shed if scarce resources can be allocated to produce higher yielding items. In some instances, selling less or, rather, selling more goods with higher profit margins, is best.

Knowing what your costs are and controlling them is crucial to a company’s long term success. By converting fixed cost, the costs that don’t change with sales or production, to variable costs, the company will be in a better position to respond to changes in sales—up or down.

Get more cash

How to improve your collections efforts

Collections may not be every business owner’s favorite task however, maintaining an effective collection strategy is essential to running a successful business. Traditionally, collection departments focus on the clients with the most dated debt, as opposed to the clients with newly formed debt. This strategy may seem logical, but resourceful collection companies and departments should consider modifying this approach, and look at concentrating their efforts on customers that will provide the most productive collections.

The goal is to have collections employees work as analysts, as well as collections callers. By doing so, companies can improve collections and the bottom line.

Here are a few tips to help achieve optimal collections results.

Out with the old

One of the oldest, and perhaps most inefficient collections methods is prioritizing your call list based on the accounts receivable aging report. An aging report can be useful if used under the right circumstances, as it offers a snapshot of the overall health of a company’s customers. However, prioritizing your collections solely on an aging report is not recommended, as it assumes the most overdue invoices pose the most risk, which is not always the case considering customers with larger balances usually generate a larger risk.

Get the credit department onboard

A collaborative relationship between the credit and collections departments is essential to identify the risk of a customer. Ideally, your credit department should utilize an internal score system based on multiple factors when evaluating credit limits and approvals. Using an internal scoring system as opposed to relying solely on credit bureau scores can give the collections department better insight on a customer’s potential spending habits based on past transactions.

The credit department’s role should extend beyond determining initial credit and should include a regular review of existing customers. Customer reviews should be done during scheduled intervals depending on the nature of the account, balance and industry. Common reviews may include:

  • Credit bureau scores
  • Financial reports
  • Original references to get updates on their pay history
  • Personal visits to high-dollar customers

Once updated information is collected and reviewed, the credit department should reassess the customer’s internal score to determine if the maximum credit, payment terms or payment method appropriately match the customer’s associated risk. This information should be with the collections department so that they can adjust their approach accordingly.

Create customer segments

The key to prioritizing your collections is to segment your customers based on their financial history. Knowing a client’s financial history is a strong predictor of a company’s future financial standing. A better understanding of  your customers’ financial history helps identify and prioritize which clients or customers it is best for collections to focus on.

In addition to analyzing a customer’s financial history, you will need to gather information on the:

  • Size and age of the company
  • Seasonal impact on the business
  • Industry impact and trends
  • Number of customers the company sells to
  • Position in the supply chain
  • Credit history

Gathering this data will allow collections employees  to better prioritize  and select the most effective methods for collecting outstanding debt.The better you know your customers, the better your collection efforts will be.

Put it all together

Organizing and analyzing a customer’s credit history can be overwhelming. However, the sophisticated software that is available today can help create in-depth analyses with ease!

Placing customer segments into a spreadsheet will allow the collections department to sort and prepare management reports, quickly and efficiently. The collections professionals can then easily analyze the different segments based on their inherent risk to determine a collections approach that will fit that particular segment.

Collections can take time, but it can be time well spent. If you put these practices to use, you will increase your collection results and keep bad debt to a minimum.

 

Coldwell Banker

How to establish trust with your bank

According to a recent survey, financial services and banks were noted as the least-trusted industries in 2012.  Despite the fact that the financial crisis occurred five years ago, people are still concerned about the reliability of banks.

The 2012 Edelman Trust Barometer had more than 30,000 online respondents, in which only 46% of U.S. respondents said they trusted the financial services industry, and only 41% said they trusted banks. Clearly, the last few years tainted the banking industry’s image, and it is taking time for public perception to change.

Despite what the public may think due to the history with the bank crisis and the bad press, banks are not inherently sneaky or dishonest. But like any business, it comes down to building relationships.

To establish trust with your bank, there are a few precautions you can take that will help to set the foundation for a strong relationship.

Don’t put all your eggs in one basket

When you are establishing your business, don’t have all your banking relationships at one bank. For example, many bank documents will cross collateralize loans and bank accounts – both personal and business. Set up your operating business account at one bank and payroll at another. It is also a good idea to open personal accounts and loans at a completely different bank than your business.

Grow the relationship

While it is vital to have a great relationship with your primary banker, you need to move beyond that relationship in the bank. Bankers are transient and move positions within the bank or to another bank quite often. If you only build a relationship with your banker and your banker is promoted or leaves the bank, you will be left with no allies. Get to know your banker’s boss and associates. You never know who will be your banker tomorrow.

Know your bank

The relationship you are trying to establish is really with the bank, so take the time to learn about the banks you do business with. Understand the services they offer. Search the Internet to read blogs and reviews from happy and unhappy business customers. This will help you better understand if this bank is a good fit for you.

Sources and uses of cash

When you talk to a banker about the best loan for your company make sure the banker understands what the money will be used for. Don’t assume the banker knows. For example, if you need money to fund payroll and pay vendors, you need a working capital loan. A working capital loan is based on short-term assets (accounts receivable and inventory) and is used to finance short-term liabilities (payroll, accounts payable).  Don’t let a banker talk you into an SBA term loan to finance working capital. Match assets and liabilities – short term loans fund short-term liabilities and long term loans fund equipment and real estate.

Read the loan documents

So many smart business people are more concerned with the terms on their cell phone contract, but never bother to read or understand the details on a commercial bank loan. While most bank loan documents are standard and the bank may not make any changes, a business owner should still have an attorney review all the documents. The attorney’s role would be to advise you on what is in the documents – what are events of default?  What are cure periods? What should the business owner make sure they do in terms of financial reporting, notice of management or ownership change?  If you understand your loan documents, you will be better protected against surprises.

The public’s perception of the banking industry is clearly still hindered by the scandals, government accusations and lawsuits brought on by the financial crisis. Fortunately, the reality of the situation is better than it is perceived.

Regardless of the industry’s image, it is always best for business owners to take a proactive approach. Taking the time to get to know your bank is the key to building a long term successful relationship; one that you can feel confident in, where you can trust your financial service provider.

 

Robyn Barrett is founder and managing member of FSW Funding, formerly Factors Southwest LLC, specializing in factor financing for small to mid-size companies. For more information visit: www.fswfunding.com

 

Arizona Business Financing

How Can Companies Collect Faster to Free Up Cash?

Accounts receivable (AR) is one of the most important, if not the most important, operations impacting a company’s cash flow. As a result, decisions and actions made within the accounts receivable department can be felt throughout an entire company. While the economy shows signs of improvement in some sectors, companies must still proceed cautiously and consciously when it comes to monitoring and managing cash flow. Recognizing that the accounts receivable team is not just a line on the balance sheet and can be a valuable asset that collects faster and frees up cash, is the first step. Next, consider possible improvements to your accounts receivable processes and policies.

To create a more efficient AR department, determine a plan and implement strategic goals that all employees will understand and work towards achieving. Implement the following steps and suggestions, to turn your AR department into a cash-collecting machine.

Set clear goals and objectives

Before deciding to turn the AR department upside down, stop to consider what outcomes you want to achieve. This may seem like common sense, but we have all experienced the manager on a mission who wants to create change, without a clear understanding of their effects, positive or negative.

Gather information such as budgets, metrics and benchmark data from previous years to have a starting place to gauge progress. A quick comparison of your company’s information against other similar businesses will also help establish more realistic goals.

Once you determine clear areas in need of improvement, identify the processes that will best help the department reach those goals. The goals set should be measurable and achievable within a sufficient time period. Otherwise, the operational changes can put a company at risk of low employee morale and managers can face challenges enlisting team support to champion the change that needs to take place.

Employee involvement

Improvement has to filter from the top down and be brought in by all departments and employees involved. Give employees a stake in the change by asking for input during the planning phase.

Communicating with employees provides management critical insight into how well or poorly the department’s processes and procedures work in practice. Employee involvement is a crucial factor to success, as it is far easier to work hard towards goals you helped establish than it goals forced upon you.

Plan for success

Develop a calendar that notes milestones and completion dates for each goal. Identify who will be responsible for what, and include expected monthly progress that can be measured against actual performance.

Evaluate your goals throughout the improvement process, so adjustments can be made when required. Create a document that summarizes your metrics, goals, calendar and plan for implementation, then distribute it to all involved.

Once a calendar is created, determine how the changes will be implemented. Strategies will vary depending on the unique specifics of your department, so be sure to get feedback from everyone involved to avoid potential missteps.

Explain the benefits

Make sure employees know the value of the changes. If they understand the benefits of change they will be more inclined to work towards the new goals. Offer incentives, such as a reward for meeting goals. Incentives can be intrinsic like a simple thank you for helping on a job well done or posting examples and kudos of employee achievements, you may also consider monetary when appropriate.

The key to successfully revamping your accounts receivable department is to turn management goals into team goals, so that all parties involved can be recognized as valuable and understand that what’s good for company is good for them.  Taking the necessary steps will make the AR team both a cash generator and valuable voice within the company, as opposed to the department that keeps its head down and rinses and repeats the same processes for years on end.

 

 

 

internet

Research potential clients online to protect against fraud

While many business-to-business companies use the internet as a way to gather information on the individuals and organizations they interact with, the web can reveal much more than an  address, phone and basic facts on the products or services offered. Before getting into business with a company, it is important to do your research—and the internet makes that easier than ever.

Search engines such as Google are now a valuable vetting tool to gauge the risk of doing business with a new customer. Aside from the information you may uncover from a search engine’s results, social media sites such as Facebook, Twitter, LinkedIn and Yelp can also be used to cross-check information and determine the legitimacy of an organization.

Learn the basics

Begin by finding out how long the company has been in operation, who the leader is, and what sort of goods and services they provide. Verify that the information is up-to-date and check to make sure it is consistent on each site.

Start with the company’s website and determine if it appears professional and informational. Then, consider checking reviews of the company. People that interact with that company are likely to post their positive and negative experiences, which can allow you to see how they are perceived by others. If you are unable to find out any information online, it could be a sign the business doesn’t exist, hasn’t been operational for very long or has recently changed names.

Find out who you are dealing with

If you receive a large order online or over the phone, check out the address on Google maps. Does the address indicate a real office or is it in the middle of a parking lot? When dealing with international clients, it is important to know that some countries are a higher risk than others. High-risk countries can be determined by checking the Corruption Perception Index, which measures the perceived levels of public sector corruption in 176 countries and territories.

Aside from looking into the business and its location, consider running a search on your contact at the organization and/or the person who is ordering the goods or services. If the Facebook profile or LinkedIn account says the person is younger than 18 then it is safe to say this is not a prospect. If their profile says they are in a different location or with a different company, it can be a red flag or a simply a sign that they don’t update their information regularly.

Connect online

Many businesses of all sizes are creating Facebook pages to stay in touch with their customers and connections. It can be valuable for you both as an individual and as a business to “like” the pages of the companies you are interacting with on a regular basis.

Not only will “liking” the Facebook pages of your clients show them you are interested in their businesses, it will also keep you informed of any news, events or promotions that are taking place at the company. Although these updates are often good natured, they can also alert you to any red flags you should be aware of such as a sudden clearance sale or sudden move. Doing a big clearance sale on Facebook can be a red flag for credit managers and collection people that the client may be having cash flow issues. Also, if you have a client that suddenly closes the company’s doors and moves to another city, their Facebook page will often show where they moved to so that you can collect any debt owed.

Ask detailed questions

Although internet research can provide a wealth of knowledge, sometimes it can be just as valuable to ask your potential client questions about your concerns. It is important to know who you are dealing with to protect your own business from the hassles of non-payment, fraud and other undesirable situations.

 

Robyn Barrett is founder and managing member of FSW Funding, formerly Factors Southwest LLC, specializing in factor financing for small to mid-size companies. For more information, visit www.fswfunding.com.

business practices

The Year In Review: Take Inventory Of Business Practices That Can Help The Bottom Line

As 2012 comes to a close, many of us begin thinking about personal resolutions we’d like to make and the things we would like to improve upon in the coming year. This time of reflection is also valuable for business owners and entrepreneurs. The year’s end is a good time to also examine a company’s business practices, policies and operations, and to consider changes that may help increase growth, improve efficiencies and contribute to a company’s future success.

The first step is looking at results and data from the current year to determine the effectiveness of current practices, systems and customer relations. Ask yourself what changes and improvements the company can make to improve operations and increase cash flow.

Review company policies and practices

Begin by reviewing your company’s credit, sales and collection policies. Look at each area, and identify ways you can potentially improve your process, so it can run more efficiently and profitably. Analyze daily tasks from start to finish, and ask questions. Can you centralize a process by product, task or client? Which makes more sense and improves efficiency?

Then, once you fine-tune the process, document it. Develop an internal procedure and policy manual for employees to refer to and update as needed. This will streamline your internal and external practices and improve the consistency in delivery of your product or service, which will help improve profits.

Review your customer’s payment efficiency

Do you know how to evaluate if your clients are profitable? It’s important to evaluate how your team’s time is being spent. Some clients are more demanding and, thus, require more time. If this is the case, are you charging for the additional attention or is the client actually costing your firm time and money? In some cases, it may be more cost effective to resign the account.

To help determine the profitability of a client, track the average hours spent on each client per month, and review this on a quarterly basis. Doing so can quickly uncover high-maintenance clients and allow management the opportunity to review pricing to determine if the required yield is being met. After all expenses are allocated and subtracted from the revenue from each client, it is easy to then conduct a comparison of the clients and evaluate each quarter.

Review your receivables

If your customers are taking too long to pay, or accumulating outstanding invoices, this is costing your company money. If the problem is consistent, don’t shy from using collection outsourcing companies or agencies to get the monies owed. While an outside agency will charge for its services, the alternative may be lower collection rates, higher borrowing and bad debt write-offs.

Looking back will move you forward

Reflecting on 2012 allows businesses to celebrate the year’s successes and provides the opportunity to seek out solutions for working smarter and more profitably. After collecting the necessary data and assessing your company’s policies and practices, think about what you can do better for your business in 2013. While sometimes drastic changes may be what it takes to turn your business around, sometimes simply an increased awareness of the inner workings of your company can make all of the difference.

For more information on reviewing business practices, visit fswfunding.com.

Steps to Improve Cash Application Percentage

Steps To Improve Cash Application Percentage

Better Payment Application Improves Cash Flow: Simple steps can make significant difference.

When a payment is received by a customer or client, businesses often consider the transaction to be complete, overlooking the last step of the sales cycle — applying. The ability to apply payments to invoices correctly can be difficult for most companies for a variety of reasons.

Although it’s tough for most companies to reach 100 percent accuracy, there are some steps to take that can significantly improve your cash application percentage.

Dealing with multiple payment types and multiple payment channels

While it is extremely convenient to be able to receive payments via Automated Clearing House (ACH), wire transfers and credit and debit card payments, lockboxes, electronic bill presentment and payment (EBPP), mobile devices, Web portals and even by phone or in-person visits, these options create multiple ways for payments to get lost in the shuffle.

When dealing with the multiple channels and their individual requirements, customers can provide incomplete remittance information, payments that don’t match the invoice, or even take unapproved or unearned discounts. Accounts receivable employees can also get confused and inaccurately apply payments to the wrong invoice, have difficulty identifying the customer or company, and find they are unable to manage the volume of payments. Together, these two things lead to a growing amount of unapplied or misapplied cash for businesses.

How to prevent unapplied and misapplied payments

Unapplied and misapplied cash creates a myriad of problems that can negatively impact cash flow by taking a considerable amount of time and effort to resolve. It can also damage customer relationships when up-to-date customers begin receiving calls from collectors and invoices for accounts that have already been paid.

Business owners can avoid this from happening by managing and improving the cash application processes by taking just a few or all of the following steps:

  • Create, monitor and staff an unapplied cash account
    Some companies manage unapplied cash by depositing the payments into an unapplied cash account. If an unapplied cash account is created, it is important to monitor the account and to clear the balance on a frequent basis.
  • Establish internal controls
    Develop and implement internal controls to ensure cash is applied on a daily basis and the amount of cash received matches the amount applied. Bank accounts should be reconciled on a daily basis to make sure payments are applied on the right day and to the right account.
  • Assign each customer a single account
    Sales and other departments within your organization may want to open several accounts for a single customer, but this creates problems when it comes to applying cash. Multiple accounts make it difficult to know where to apply a payment.
  • Establish a deduction write-off policy
    It can be costly and time consuming to resolve deduction disputes. In many cases, it is more efficient to establish a deduction write-off policy. The threshold limit should be determined based on historical information and can be based on a percentage or dollar amount of billed criteria.
  • Communicate with customers
    If you have questions about missing or unclear remittance information, again, it is best to call the customer. For example, if a customer sends a payment to cover several invoices, contact them and ask how to apply the payment.
  • Strive for accuracy
    Above all, strive for accuracy. Reward staff members who apply the cash correctly the first time.

Although cash application is far from a perfect science, even the slightest improvement will increase the cash flow and the organization of your business’ finances making it easier for both your employees and your customers. Change may not happen overnight, but each improvement will bring your organization closer to the elusive 100 percent accuracy.

For more information about FSW Funding, visit fswfunding.com.

How to Avoid Non-Payment of Invoices

How To Avoid Non-Payment Of Invoices

While it is ideal if you can have your customers pay prior to or when the delivery of goods or services are rendered, it is not always possible to finalize a deal on these terms.  More often than not, goods and services are purchased on credit or on term agreements to pay in the near future.

So in the push to sell, companies must weigh the trade-offs and do what they can to protect the bottom line.

As with any form of credit, there is always the risk of non-payment for goods or services you provide. Since the failure of customers to pay can or will have a negative impact on your company’s cash flow, there are steps you will want to put in place to help eliminate this risk.

Set credit terms

Credit terms are the most critical thing to a business when it is involved in business-to-business trading. Without providing credit term information, a customer may believe they are able to pay when they want to rather than when the payment is truly due. An invoice must always state the terms on which the invoice is due for settlement clearly. Surprisingly, many companies overlook this simple practice, and send invoices without including any credit terms.

Send the invoice immediately

To help avoid non-payment, the presentation of an accurate invoice to a customer is a very important first step after goods and services have been supplied. In addition to the credit terms, the invoice should clearly show what items have been supplied, when they have been supplied and where they have been delivered.

Call to make sure items have been received

Start following up with the customer a day or so after the invoice has been sent. Ask if the customer is satisfied with quality and quantity of the goods or services supplied and make sure they have received the invoice. If you are dealing with a large company, check to see if the invoice has been approved and submitted to the accounts payable department for payment on the due date. In some cases, it may be a good idea to record the collection conversations to prevent discrepancies.

Continue to follow up

Once you have made sure the goods or services have been received, don’t stop connecting with your customer. Contact with customers should be a continuous process until payment has been received. If an invoice is still outstanding 60 days after the invoice date and there has been no further contact with the customer, there is a greater chance there will be a problem collecting.

After confirming the delivery of goods, the next contact should be on or just before the invoice is due for payment. Use the opportunity to make sure your customer is satisfied with your product or service and to confirm that the payment is forthcoming.

When communicating with the customer about payment, try to get a commitment on when the check will be sent out and follow up if payment is not received. As previously mentioned, remember to record dates of conversations and any promises made or excuses for non-payment.

Know how to handle delays

Many businesses, especially in a tough economy, will withhold payment until it is asked for. Under this scenario, it can be a case of first-come, first-served, so you want to be first in line. Other customers may employ deliberate delaying tactics to stretch payables and conserve their cash. When confronted with any of these tactics, ask your customer who approves invoices for payment, and follow up with this person directly. You may also want to consider accepting different payment options. These can include checks, electronic transfers, wire payments or credit cards, making it easier for customers to pay.

If your customers are habitually late or difficult to deal with when it comes to payment, it may be a good idea to request payment upfront to avoid the situation entirely.

While all of this may be easier said than done, these steps demonstrate a commitment to your business and its outcome, and are necessary in order to avoid cash flow challenges. Putting the correct steps in place and making them part of your business practice can be the differing factor between business growth and having to lay-off employees or, worse yet, close your doors.

For more information about avoiding non-payment of invoices and/or FSW Funding, visit fswfunding.com.

New Technology Makes Financial, Inventory Management Easy, Affordable

New Technology Makes Financial, Inventory Management Easy, Affordable

The expansion of the Internet and the growth of online financial tools continue to change the way we do business. With the development of Web-based and online tools, it is easier than ever for small business owners to manage day-to-day operations, track financial transactions and measure performance. Unlike the more costly software packages many companies were using up until now, Web-based tools are available free of charge or for a very low cost.

If you are a still using old systems and thinking it’s time to update your business, here are a few key areas to consider that will curb costs and increase efficiencies:

Inventory management

When was the last time you examined your inventory? If you are unsure, it is safe to say apply the 80/20 rule ― 20 percent of that inventory is turning while 80 percent sits idle, taking up space and costing money to finance.

Effective inventory management can be the key to running a profitable business.

Before making a decision to update pricing or increase inventory, you must first know what you have in your current inventory. Online inventory management programs can do just that. An inventory management program can also be especially helpful for companies with multiple warehouses, or stores with multiple locations. Businesses can benefit from the up-to-the-minute software when multiple people are tracking merchandise orders, sales, returns and product availability. Inventory management programs also show which items are slow selling and should not be ordered or produced as frequently.

Finally, using an online inventory management system that interfaces with accounting software such as QuickBooks makes it easier to evaluate your financial situation.

Online payment options

Both business-to-business and business-to-consumer companies were previously more limited in the type of payments one could accept. Today, thanks to new technology, small business owners that typically accept only cash or checks can now easily add credit cards and online payments to the mix.

More amazing is that, traditionally cash-only small merchants are now able to accept credit card transactions by simply using a smartphone. Tools like the Square and Intuit GoPayment readers will scan a credit card payment from the phone. The cost is a flat percentage fee per transaction. If a customer is paying from another location, businesses of any size can accept credit card payments online with websites like PayPal and Google Checkout. Certain applications also allow customers to purchase products directly from Facebook brand pages now.

Payments by check can also be received online from remote locations with the development of eChecks. Customers can input their check information, including account number, routing number and check number, into an online form. The information is then evaluated by an online database that will tell businesses within seconds whether the check is valid or not. This tool can reduce the fear business owners may have about accepting checks by eliminating the potential for checks to bounce or for a purchase to be made from a closed account.

Managing deposits

Remote Deposit Capture (RDC) is the official name banking institutions use to describe the process of electronically depositing a digitally scanned check. With RDC, business owners and managers can make a deposit by using a computer, scanner and remote deposit capture software or employing a third party. When the bank receives the digital check, almost immediately they can send digital copies to another bank to verify the funds and make the appropriate withdrawals and deposits. This tool is not only convenient and a great time saver, but it also reduces cost and the risks connected to driving to the bank to make deposits. This is especially true for larger companies, which often hire a courier service or armored car to handle the task.

Banks have recently implemented applications that allow businesses and individuals to deposit checks from an iPhone or Android. Checks can be photographed and submitted through an app.

Adopting online tools to manage financial tasks and operations can be fairly simple and inexpensive, while the benefits to your business are abundant. These tools not only save time and money, but they also increase the ability to track day-to-day operations, enabling companies to make more informed financial decisions; and most importantly, they can help improve cash flow.

We’ve all heard the saying “cash is king.” That statement has never been truer than it is today.

For more information, visit fswfunding.com.

Creative Financing: Options for Funding Business

Creative Financing: Innovative Options For Funding Business

Whether you are just formulating a business plan for launch or you already have a company that is in need of a cash infusion, bank loans are often unattainable if you don’t meet the proper requirements. Fortunately, there are a variety of creative ways to fund the growth.

If your banker turns you down, instead of becoming discouraged, consider one of these 10 alternative financing options:

Barter

Before there was currency, there was only bartering. The U.S. Department of Commerce estimates that 25 percent of the world’s trade is still done this way. Bartering can save money, move unused inventory and find new customers. Think about how you can trade or exchange your products or services. Bartering directly with another business can be done through a barter exchange like IMS Barter.

Business incubators

If your business is new and technology-based, then it may be a good candidate for seed money or a mentorship program that will help connect to capital. Organizations like Excelerate Labs and TechStars have a great track record of success. While there is a lot of competition to become part of an incubator, it is good to focus on a handful of organizations which match up best with your goals.

Business plan competitions or other contests

When all else fails, try to win the money! There are a number of regional and national competitions giving away substantial amounts of money. These include the MIT $100K Entrepreneurship Challenge, the GE Ecomagination Challenge and the Amazon Web Services Start-Up Challenge. This is one of the toughest ways to raise money, but if you have a very competent team, a great idea and a stand-out presentation, go for it.

Crowdfunding

A sister method to peer-to-peer, you can now get people to invest in your cause in exchange for something other than money. This is a different source of funding because the money is not repaid. The incentives for donors range from receiving your first products to having a product named after them. Popular sites that facilitate crowdfunding include IndieGoGo.com and Kickstarter.com. Crowdfunding is very emotional and involves gathering cash from many people. The success in raising cash is based on the appeal of your idea, but if you don’t raise your goal amount, in some instances, you don’t receive any money from the people that pledged to invest.

Government grants

There is money to be found in government grants, but these programs require research at local, state and federal levels. Agencies such as USDA, the Department of Commerce, and the Treasury Department offer some attractive programs, but they are very specific and technical in nature, and each comes with reporting strings attached.

Factoring

Receiving an immediate cash advance against invoices or accounts receivable from asset-based lenders called factors can be an optimal solution for securing cash needed to grow. The factor advances most of the invoice amount, usually 70-90 percent, after reviewing the credit-worthiness of the billed customer. When the bill is paid, the factor remits the balance, minus a transaction or factoring fee. Factoring can be a good source of capital for high growth or start-up companies, but not a method of financing for a company that is shrinking or losing money.

Microfinancing

While this is relatively new in the United States, small loans up to $10,000 are gaining popularity. The loans are based on your experience, passion, market opportunity and sales. Organizations offering microfinancing include Accion USA, Grameen Bank and Kiva. If you have an appealing idea and only need a small about of money, it can be a good alternative.

Peer-to-peer lending (P2P)

It is now possible to go online and get funding from people you do not know on sites such as Prosper.com and LendingClub.com. P2P loan amounts will depend on credit score, the economy, the length of the loan and the business’ story. The downside here is P2P loans are not easy to secure, and the interest rates can be very high.

Retirement accounts

Before borrowing money from an IRA or 401(k), first find out if you can get a 60-day interest-free loan from your retirement account. The benefit here is there are no fees, if the loan is paid back in the 60-day time frame. Remember, this is your retirement money, so using it is risky and potentially devastating to your livelihood — if the business fails.

Supplier or wholesaler financing

Supplier or wholesaler financing secures money needed through a business’ supply chain. This method works best with a smaller, local supplier that really wants business and is willing to work with you. Factors can be a big help in this area, as they can offer vendor assurance letters which can help garner additional credit from a vendor.

The key is to think beyond the traditional and to research various avenues to determine what may work for you. Although these options may not all be long-term financing solutions, they can definitely help bring in the cash you need for growth, until you qualify for a traditional bank loan or can appeal to investors.

For more information about financing, visit fswfunding.com.

financial statements

What Your Financial Statements Can Tell You About Your Company

You don’t have to be a CPA or rocket scientist to decipher the information on financial statements. If you have been intimidated or reluctant to take the time to learn to read your company’s financial statements, now is a great time to learn.

Below are a few quick and easy steps to untangle the web of financial reports like income statements, balance sheets and cash flow statements.

Income statement

Income statements can be used to make key decisions, such as whether to extend credit to new accounts; increase or decrease an existing line of credit; offer certain terms or discounts; and, most importantly, whether a company will get paid.

The income statement records a company’s performance over a set period of time and starts with net operating income, sales or revenue, and ends with the net income. The net income is what the company earns after deducting expenses like the cost of goods sold, overhead and interest.

Key metrics to look at on the income statement include the interest coverage ratio and gross profit margin. The interest coverage ratio or times-interest-earned ratio lets you know if the company has enough money to cover the cost of its debt. The gross profit margin shows the company’s relationship between revenue and the cost of goods sold. You can use the percentages to gauge whether a company is incurring insufficient volume or excessive purchasing or labor costs.

You want both the interest coverage ratio and the gross profit margin to be high so that your company is not carrying too much debt and there is enough money to pay expenses.

Balance sheet

A balance sheet captures a company’s financial position at a specific point in time. This shows the company’s total assets such as cash, short-term investments, inventories and equipment; total liabilities like accounts and notes payable; and shareholders’ or owners’ equity. The quick ratio and the debt-to-equity ratio are important to note in the balance sheet.

Quick ratios are considered to be a more conservative measurement than the current assets ratio because inventories are excluded. Inventories are “less liquid” than cash, and if a company needed to sell its inventories to pay debt, it could be difficult to arrange a quick sale.

A high debt-to-equity ratio could indicate a company has aggressively financed its growth with debt. On the up side, if the borrowed money assisted with increased or improved operations, the company might generate more earnings.

Each industry is different, and it is essential to compare to its peers. Some industries have low gross margins which could be considered bad, but if it is an industry norm and the fixed costs are low, it should be less of a concern.

Cash flow statement

Cash flow statements tell where a company is getting cash and how they are using it. Cash flow statements are divided into three sections: operating, investing and financing activities. Some key information contained in cash flow statements comes from income statements and balance sheets.

Operating activities — cash and non-cash

The first line item is consolidated net income. You can add certain line items like depreciation and non-cash transactions to net income and subtract other items, such as deferred income taxes, to calculate how much cash a company has generated during a specific time period.

Investing activities — inflows or deposits

A cash flow statement’s investing activities section details a company’s property, plant and equipment purchases, sales of short-term investments, or the acquisition of a business during a specific time period.

Financing activities — outflows or payments

Understanding significant changes in a company’s cash flow can help you make informed decisions. You want to know whether your company’s cash is increasing or decreasing. Gains may signal an organization financed its debt and investments and had more money remaining than in the prior period. Similarly, if a company’s cash flow is decreasing, the organization may experience future cash flow management problems.

While you may still need to hire a professional to help you maintain your financial statements and documents, it is always good to have a general understanding of what each financial statement is used for. As a business owner, it is important to know the financial trends to determine if the numbers are increasing, declining or staying flat. Then you can be proactive and steer you company in the correct financial direction.

For more information about financial statements and/or FSW Funding, fswfunding.com.

Embezzlement

Protect Your Business From White-Collar Crime, Embezzlement

In a tough economy, white-collar crimes are more rampant than ever. A study by Marquet International, Ltd. on 2010 embezzlement data found that the average scheme lasted more than 4.5 years, the average loss was $1 million and two-thirds of the incidents were committed by employees who held finance and accounting positions. Whether you run a small start-up business or a Fortune 500 company, your finances are important ― and keeping track of them is essential.

While your business strengths may lie in production management, business development or customer service, it is imperative that you put certain safeguards and precautions in place to protect your business. If not, it doesn’t matter how strong you are in the other business areas.

To help protect yourself from financial fraud or embezzlement, consider implementing the following practices:

Conduct background checks prior to hiring

Although this may seem obvious, very few companies or small businesses actually do it. You not only want to pay attention to the criminal record, but also the credit history of the people you are hiring. This is especially true for people you are trusting to work in the finance department handling payments, credits, cash or expensive equipment.

Separate responsibilities

While you may consider the employees in your finance department very trustworthy, it is a good idea to have a system of checks and balances throughout the finance process. Avoid allowing a single individual to be in charge of all of the bookkeeping. Assigning separate employees for billing, accepting payments and depositing funds can serve as protection. If you have a small business that cannot disperse the duties, a simple safeguard can be limiting the number of people who can sign for checks, or only allowing specific people access to checks from certain accounts. This way, if something looks funny, you can easily trace it back. Having the business owner as the only one who can sign payroll checks is one idea, as well as only allowing the financial person to have access to the account that issues payments for goods or services.

Understand your books

Knowing the basics of your company’s finances can make all of the difference. Basic things like recognizing who your key vendors are and keeping record of all invoices, payments and purchases is an easy way to begin. Often times, embezzlement occurs by someone issuing payments to a vendor that doesn’t exist, or issuing additional payments on something that has already been paid.

Audit regularly

Along with the regular checks and balances, it is important to audit your books and inventory regularly. Surprise audits are sometimes a good idea if there are long periods of time between your routine audits. Consider hiring an outside professional to audit your books once a year to make sure that everything is on track. In addition to finding irregularities, you might find ways to improve efficiency or cash flow with these audits.

While you cannot anticipate every circumstance, establishing internal controls can help eliminate the risk of embezzlement within your organization. Of course, it is always a good idea regardless to know the financial aspects of your business — even if you decide to let someone else run the numbers on a day-to-day basis.

For more information about how you can protect your business from financial fraud or embezzlement, visit fswfunding.com.

Entrepreneurs

Entrepreneurs: Three Key Things To Consider Before Starting Your Business

Three key things for entrepreneurs to consider before starting their own business


The benefit of a challenging economy has been the inspiration for new business. As individuals find themselves out of a job they may have held for decades, they are no longer taking their talents elsewhere. Instead they are choosing to create their own jobs; and in the process, jobs for others.

On a recent visit to the W.P. Carey School of Business at Arizona State University, I had the honor of meeting a group of enthusiastic future entrepreneurs. Growing up during a time of uncertainty has inspired these students to explore the possibilities of starting their own businesses.

Whether you are a college student with a great idea or a professional seeking to take control of your fate, there are three key things for entrepreneurs to consider before starting your own business and venturing into the world of entrepreneurship.

Do something you’re passionate about

Being in control does not mean more free time. Starting your own business will consume the majority of your time and energy. But if you are passionate about what you do, it won’t feel like work. And when you love what you do, you are more likely to be successful. Think about what you know, what you like and where you may be able to fill a need or provide a benefit to others. This line of thinking most often leads to great ideas that can ultimately become great companies.

The right person for the job

Entrepreneurs wear many hats, especially during the start-up phase. In the beginning, you may be the receptionist, janitor, most valuable employee and CEO — often simultaneously. At a certain point, though, you will be ready to hire full-time employees or need to contract expert help. Running a small operation makes it essential to surround yourself with strong people that fill your weaknesses. While you may be a very knowledgeable about your industry, it does not mean you understand how to execute marketing, public relations or finance.

When hiring, take the time to find people with the right experiences and qualifications to fit your needs. Also, consider personalities, work environments and schedules. As you begin building your team, you want to do your best to find people that you can work well with and will help grow the organization. Finally, consider the qualifications of the team as you reach out to secure potential investors.

Understand the numbers

Entrepreneurs tend to be great idea people or visionaries, but successful entrepreneurs know and understand the financial side of things. If you are still in school and think you may want to launch your own business someday, consider majoring in accounting. If you graduated already, consider taking a few accounting courses. If the thought of accounting repels you, partner with someone or hire someone who understands accounting to serve as a trusted financial adviser. Knowing the numbers and how they are calculated can help to eliminate the risk of fraud. It will also boost your credibility when talking to potential investors because they will realize you know the ins and outs of your company.

Starting a new business is a risk, but the rewards can be great. Taking charge of your own destiny and being your own boss can be empowering and challenging. In the end, having passion for what you do, the determination to make it happen and the dedication to see it through will be what sets you apart from others.

For more information about becoming an entrepreneur, visit fswfunding.com.

Business Credit Score

Protect Your Business Credit Score, Improve Business Policies

Most people know that how you manage your personal finances directly impacts your credit, but many don’t realize that proper management of your business financials is significant for protecting your company credit standing and ultimately a company’s growth and success. Just as a poor credit score can make it difficult for you to get a home or auto loan, it can influence the decision on a business loan or even the opportunity to lease office space. Maintaining a good credit score can be difficult for startups and small businesses that rely on payment for products or services.

Fortunately, there are ways to protect your company’s credit. At the core of it all, companies need to focus on receiving payments on time and keeping a reasonable amount of cash on hand to cover expenses. Enlisting staff support and making them aware of how to handle billing and payment inquiries and proper collection procedures can have a direct and positive impact on the company’s credit scores.

Create and enforce business policies

If you don’t have internal policies in place already, consider developing specific business practices that promote prompt and timely payments from your customers or vendors. Work with staff members and even key customers to eliminate issues in your organization that may adversely impact cash flow, including limiting the way your business takes payments.

When customers are consistently paying late or not paying altogether, consider automating the identification of delinquent accounts based on a formula of the customer’s credit rating, payment histories and buying patterns. This will allow you to manage the company’s accounts receivable investment more effectively.

In difficult situations, credit lines and payments can be worked out collaboratively with the customer to achieve the objectives of both parties. This may require creativity on the part of the credit manager and use of security, documentary and other credit management tools. Credit policy should be a tool used to expand company revenues as well as the customer relationship.

Provide proper training

Provide training across all departments that interact with clients or customers to ensure understanding of your company’s policies and objectives. Ensure all members of your organization provide a consistent message to the outside world, and anyone working in a customer service role knows how to answer questions about payment, deduction, dispute or credit-related problem. This can help eliminate payment delays by a customer waiting on callbacks and emails from the accounts receivable department.

When to start collecting

Use a credit and payment scoring model that triggers workflow actions. The scores should reflect credit risk and industry payment data, as well as your own experience with a customer to estimate a time for your company to begin collection action.

Be sure that collection performance goals are written down and that your staff are held accountable for their results. The goals should be in sync with those that drive senior levels of management but focus on more targeted metrics to draw team concentration to what’s important.

Partnering with outside agencies

Don’t shy from using collection outsourcing companies or agencies. While they will charge for their services, the alternative may be lower collection rates, higher borrowing and bad debt write-offs. This prioritization must be by employee as well, as some are better suited for volume collections as opposed to complex collections.

If your business is experiencing an unacceptably high level of bad debt, perhaps your credit processes are inadequate to the task. Another possibility is credit insurance, although a credit insurer will also require that you implement effective credit controls and policies. If you have tried improving your business with the steps suggested above, you may find it more beneficial to try turnkey solutions, including credit and collection outsourcing or even factoring.

For more information about how to improve your credit score and your chances at attaining a business loan, visit fswfunding.com.

Attracting Investors

How Can You Make Your Business More Appealing To Potential Investors?

The reality is more and more companies are competing for a limited supply of funding, so much like in the dating scene you want to appear attractive and engaging. Whether your business is seeking financial support from a bank, a private investor or a venture capitalist group, it is crucial that you make the right impression from the onset. When you are approaching bankers for funding, this includes putting together all the necessary documentation for a loan package, but when you are seeking investors the approach is slightly different.

In addition to the financial documents you’ll need to gather, there are other things you can do to make your business more appealing to potential investors.

Update the business plan

The business plan provides detailed descriptions of the way your company works. By developing instructional materials and documenting information on the “how to” for the operation, investors can get a strong sense of the company and how it operates. The creation of a company manual should include everything from detailed major operation information and key vendors to an organizational chart of employees and the small day-to-day tasks.

Gather financial figures

Investors are called investors for a reason. They are looking to invest their money in a business, not just give it away. Business owners need to make sure all financial information is up-to-date and ready share. This includes current and projected sales figures as well as what the company expects to need for operating costs and marketing.

Understand your financials

Just having the financial information isn’t enough. Be prepared to justify and explain where every penny comes from and where it goes. Investors will want to know what their investment will be going toward.

Reasonable compensation

Make sure the owner’s salary and compensation is reasonable. If the salary is too low, the investor will be concerned that a replacement will cause a serious cash flow issue. If the salary is too high, the investor will feel they are funding the owner’s lifestyle. This also goes hand-in-hand with making sure that you have the most competitive price for goods and services you are buying. You don’t want to overpay for goods that can be negotiated for a lower price.

Create a marketing plan

More often than not, simply opening the doors to your business does not drive traffic. A marketing plan will show how you plan on increasing awareness and traffic to your business. For the marketing plan, you’ll need to describe what you’re doing and the results, as well as the return on investment.

Develop a strong team

Most investors will want to meet with the key players at any organization. They will be looking to see that the management and key employees are professional, qualified and the right person for the job. This is also the time when the potential investor will get a real feel for the company, the flow of communication and the chemistry between the potential investor and the employees.

Beware of online profiles and posts

Investors will do a thorough due diligence of the owners and the key players. With the technology available, that also means researching the company on social media sites. Make sure that your company Facebook and Twitter pages are active and engaging toward the individual audiences. It is equally as important to look at the personal profiles of owners and employees. This may mean deleting inappropriate posts and comments or adjusting the privacy settings.

Go into the transaction with a realistic value of the company

If you undervalue, you will give up too much of the company for nothing. If you over value the company it can kill the deal. Hire an expert to get a real valuation — it will be worth the money spent.

Partnering with investors can be a great way to give your company the financial boost it needs. For many small companies, it may also be the best alternative to helping the business develop and succeed. Like any relationship, finding the right investor for your company can be challenging, but the better prepared you are, the greater chance for finding the best match.

For more information on how to make your business more appealing to potential investors, visit fswfunding.com.

Selling the Company

Planning Ahead: Steps To Selling The Company

With the new year, entrepreneurs and business owners are looking ahead and putting plans in place for the coming year and beyond. For most the focus is on increasing sales and revenues to grow the business, for some it is looking to take things in a new direction, and for others it may be stepping away from the business entirely and selling the company. Regardless of the objective, planning is essential.

If a business owner is interested in actually selling the company, there are a number of key steps that need to be taken to help ensure success.

Take your time when selling the company

Planning for the sale of a business should begin at least one year in advance. It can take this long to get financial information and documentation pulled together to allow the owner to find the best buyer for the business, that is a match financially and has the right professional experience to step in and take over. When a buyer is found and the deal is finalized, it is also important to allow time for the transition.

Find the right people for the job

To find a buyer, you may want to consider consulting a reputable business broker. A broker can help navigate the steps of preparing and selling the company. Also, tap into your connections to ask around and get advice from trusted sources such as an accountant, banker and attorney. You may be an expert in your industry, but these professionals have handled transactions like this numerous times and often know what to look for. Consider asking people in your business network for referrals and while brokers can be helpful, avoid professional brokers that ask for large upfront deposits.

Succession planning

When selling the company, the business owner may stay on for a period of time as a consultant or contractor. Either way, at some point they will be leaving, and it is crucial to put together a management team that can run the company without the owner. This process can also take time.

Do not assume that relying on longtime employees and managers is enough. In some cases, a manager may have been on staff a long time, but they are still not as involved in the entire business process as the owner and may not know a great deal of the business operations. Planning ahead will eliminate the need for the seller to stay on long after the business is sold and allow time to train and promote someone from within or to hire a qualified person from outside the business.

Document an operations manual

In addition to developing the right management team, developing instructional materials and documenting information on the “how to” for the operation is vital to a successful transition. The creation of a company manual should include everything from detailed major operation information and key vendors to an organizational chart of employees and the small day-to-day tasks. This gives a real value for the company by providing the potential buyer with a base for operating the business.

Make your company desirable to buyers

First impressions are important. Think of how you would react to your business if it was your first time walking in or seeing the behind-the-scenes operations. Making necessary upgrades, documenting procedures and listing business statistics, such as operation costs, yearly sales increases and customer growth, gives a potential buyer the information they need upfront.

Transferring the products

If the company sells a service, most contracts are month-to-month so customers can leave anytime. This means the buyer will devalue the cash flow stream. If you can patent or trademark services and products, this will add value to the company, allowing the seller to command a higher price. If possible, do not take a seller carry-back note. This means the sales price will be paid over a time period and may be based on the future profitability of the company. Less cash upfront is better than more cash over a longer and uncertain period of time.

When selling, it is important to be realistic. According to data from BizBuySell.com, more small businesses were sold in 2010 than 2009, but were sold for less.

Whether it is a business-to-consumer or business-to-business model you are trying to sell, planning ahead is vital. Reviewing the business structure, its operations and securing a reputable broker positions the seller best. In other words, planning to sell the company you have spent countless hours building will ultimately make it more desirable to buyers.

The only question now is, once the business is sold what will you do next?

For more information, visit fswfunding.com.

 

Review Operation Procedures, Expenses

Run Your Business Effectively: Evaluate Operating Procedures, Expenses

Run Your Business Effectively: Evaluate Operating Procedures, Expenses

Managing expenses effectively is a vital part to running any business. With the new year approaching, what better way to celebrate than to make sure your business is operating as smoothly as possible.

Operating procedures are often the first thing a customer or vendor encounters when interacting with a company. As a business owner or manager, reviewing operations can improve customer relations and help contain costs.

As part of the review, operating expenses and lending relationships should also be evaluated because practices are continuously changing, and what may have worked for your company in the past may not be the best option now.

Evaluating operating procedures

Effective communications

Making sure that your staff members are communicating with one another sounds obvious, but it is important to check that the communication between all levels of management and employees is working well and everyone is on the same page.

Breakdowns in communication can lead to quality and customer service issues that can result in increased material and labor costs, not to mention dissatisfied customers.

Improve floor or space plan

Does your facility’s floor plan allow for efficient movement of material and employee safety? Consider utilizing Six Sigma analysis, a business management strategy originally developed by Motorola, but is now widely used in many industries.  An outside consultant specializing in the field can be well worth the fee, frequently paying for themselves through the costs savings they implement.

Update electronics

IT systems must be in place to provide timely, accurate reporting for management to make decisions. Aging equipment can also slow down productivity and efficiency. If your budget allows, consider making new electronic purchases before the end of the year. This can be good for taxes and help get the year off to a good start. Also, moving toward a paperless office can help reduce supply and storage costs and increase productivity.

Review operating expenses

Check insurance coverage and rates

As with any type of insurance, it is important to make sure that the company is getting what it’s paying for. Review insurance policies for acceptable coverage and negotiate better rates without giving up the protection that your company needs.

Negotiate better terms on rent

With the number of vacant buildings around, landlords may be more willing to accept less to keep the building occupied and generate income. You may also find that by shopping around, you can get a larger space for less money.

Look into employee benefits

Benefits can be a significant cash expense, so make sure the benefits are adequate for the location and industry of the business. If necessary, have the employees share some of the cost.

Hire the experts

A good CPA can provide tax advice to save cash. You should consider hiring competent outside professionals because they can save you a significant amount of money in the long run.

Eliminate unnecessary costs

Labor is one of, if not the largest, cash expense item. Review job responsibilities; overtime costs may be avoided by hiring additional staff. During a particularly busy season, temporary staffing can be used to fill a need at lower wages without benefits. Outside consultants can also provide high level, expert skills without incurring salary costs.

Are your marketing dollars being spent wisely?

While it is common to cut marketing dollars to curb costs, this is a short-sighted strategy as marketing is an investment in the company’s long-term growth. Good marketing should generate qualified leads, help to develop business growth and strengthen your brand name. It should also be strategic and consistent.

Re-evaluate lending relationships

Find a lender to suit your needs

Does your lender provide support and flexibility to meet your cash needs? What worked for your business in the past may not work for your company now. You may find it more helpful to shop around with other lenders for better rates and terms — or, in some cases, other loan options, such as factoring or asset-based loans.

Review loan documents

Do you have a contract that requires you to stay in the relationship for a period of time and pay an exit fee if you leave early? If you have more than one loan with a lender, chances are the loan docs have cross default language. Cross default means a lender will tie your loans together, and it is a provision in a loan agreement or other debt obligation stating that the borrower defaults if he/she goes into default on any other obligation.

By reviewing current operating procedures and expenses, you can find ways to save money while increasing efficiency and customer satisfaction. Although you might not think your business has any inconsistencies, there are many moving parts in any organization, and it is important to revisit your current practices.

For more information about how to run your business effectively, evaluate your operating procedures, expenses and more, visit fswfunding.com.

 

Managing Receivables and Increasing Cash Flow

Managing Receivables: A Key To Improving Cash Flow

Managing Receivables: A Key To Improving Cash Flow

Managing cash is critical to the success of any business. Whether you are providing a good or a service, it is important to make sure cash flow allows for day-to-day operations and growth.

As a business owner, you never want to find yourself in a position where you can’t meet critical payments for payroll, taxes and key vendors ― especially if money is tied up in outstanding invoices that the company is awaiting payment on. The good news is managing cash can be easy; and it all begins with managing receivables.

Set credit limits

A major part of managing receivables has to do with setting credit limits. Before selling goods or services to a new customer, do your homework. This includes ordering credit reports, checking credit references and asking others that may have experience with the potential customer. You may want to consider selling on C.O.D. until you have established some payment history before extending terms. This will help ensure that your business is not accruing unpaid debt from a company that has no intention of making a payment.

Create credit policy

Every business should have a written credit policy in place. This will help make sure that collections are done in a timely, consistent and organized manner. It also ensures that employees are following a set standard while eliminating surprises and keeping management in the loop.

Stay connected

Staying in contact with customers is critical. Initiate calls to ensure the customer has received the product or service; call if the invoice becomes past due, and execute a follow-up call for payment status. Don’t be afraid to request payment if the invoice starts to stretch.

Should the customer fail to pay after these attempts, enlist the help of an attorney to demand payment. Staying in contact with the customer and maintaining the relationship can actually decrease the amount of time it takes for an invoice to be paid. Ultimately, building a rapport and keeping the lines of communication open will significantly increase cash flow.

Offer cash discounts

Offer clients a discount if they pay early. This creates a win-win situation for both parties because the customer saves money and you get cash faster. The discount amount should be well thought out. Too high of a discount will cause a serious erosion of margin and too low may not encourage a client to pay in advance.

Provide choices

Although this may seem obvious, it is important to make payment as easy as possible for customers. Limiting the ways that they are able to pay can cause customers to put it off for as long as possible. Consider allowing customers the option of paying with a credit card or online with an electronic payment, instead of by check.

Send the bill

Once the product is delivered or the service is provided, invoice immediately. The sooner you bill, the sooner you can get paid. It is also important to make sure all information to support the invoice is completely filed in case the client has a dispute. This reduces the opportunity for the customer to hold up payment and provides a greater chance of receiving payment as soon as possible.

While receivables are one way for business owners to increase cash flow, others things to consider include equipment and inventory control, operating procedures, vendor relationships and operating expenses. By taking a look at receivables first and incorporating the recommended practices into your accounting operations, your cash flow situation can quickly go from negative to positive.

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For more information about FSW Funding and/or managing receivables, visit www.fswfunding.com.

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Small Business Association, SBA Loans

SBA Loans 101: Funding Small Business Expansion

Funding expansion of small business creates new jobs: SBA Loans 101

All the talk about the American Job Act has many thinking about how crucial the creation of jobs is to an economic turnaround. The reality is a majority of new jobs will not be a result of hiring by large corporations or government; new jobs are going to come from the growth of small business.

According to the U.S. Census Bureau, 95 percent of all businesses in Arizona are small businesses with less than 100 employees. These businesses employ 32 percent of the state’s workforce.

In most cases, small businesses must expand in order to create more jobs. For small business owners, expansion requires funding. While bank loans can be difficult for a small business to secure, a loan may be a more appealing option than finding investors or financial partners that may want a percentage of the company and input on how decisions are made.

A Small Business Association (SBA) loan or SBA loan is an option to consider. SBA loans are issued through banks to specifically help small businesses with their growth, including hiring new employees, adding more equipment and making other necessary changes. The questions then are how much cash SBA loans provide, and what does it take to qualify?

While the government-backed guarantee portion of SBA loans increased from $2 million to $5 million in 2010, protecting banks even more in the event that the borrower defaults, it is still difficult for small businesses to receive an SBA loan.

In order to qualify for an SBA loan from your bank, your business must be a for-profit business, have a sufficient amount of owner equity invested in the business and have already used other financial resources first, including personal assets.

You may also need to determine what type of SBA loan you may need. There are three specific categories:

•    The 7(a) Loan Program includes financial help for businesses with special requirements. For example, funds are available for loans to businesses that handle exports to foreign countries, businesses that operate in rural areas, and for other very specific purposes.

•    The Microloan Program provides small, short-term loans to small business concerns and certain types of not-for-profit child-care centers. The maximum loan amount is $50,000, but the average microloan is about $13,000.

•    The CDC/504 loan program is a long-term financing tool, designed to encourage economic development within a community. The 504 program accomplishes this by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.

When applying for an SBA loan, it is important to remember that bankers, now more than ever, will be looking closely at the documents submitted. When you are preparing your loan application for your banker, you typically have to include:

•    An overview of the business
•    A description on the purpose of the loan request, and how it will be used
•    A plan to repay the loan
•    Collateral in the event that you cannot repay the loan
•    Personal financial statements for the last three years
•    Business financial statements for the last three years

Understanding what lenders are looking for is important regardless of what solution you may seek to finance the expansion of your small business. Working closely with the lender to make sure you are supplying the correct materials will save both parties time and energy in the process and hopefully help to secure the funding needed.

For more information about SBA loans, visit sba.gov.

[stextbox id="grey"]Robyn Barrett is founder and managing member of FSW Funding, formerly Factors Southwest LLC, specializing in factoring financing for small to mid-size companies. For more information, visit www.fswfunding.com.[/stextbox]