Organize Your Business Finances

If your business is a large one, then you will likely have a full time accountant to look after your finances, so the following tips are generally aimed at small businesses where you will probably be doing it yourself.

Organize Your Paperwork

The most important tip is to get organized, and have a file for everything: invoices in and out, receipts, payments and anything else connected with the business. Try to keep your filing system consistent, so use either punched ring binders, wallet files, box files or folders for everything and don’t mix them up. You can then keep your files neatly stored on a shelf or in a filing cabinet.

You should also keep your bills together, one file for unpaid bills and another for those you have paid. That will make it easier for you to check what has been paid and what has still to be paid, and it’s always a good idea to keep unpaid bills filed in a prominent position and not hidden away in the bottom of a filing cabinet

Take Time Out for Your Business Finances

Set aside time in your diary each week for organizing your business finances. It is easy for small business owners to have bills, invoices, receipts and so on lying on desks and in drawers ‘awaiting filing’ while you are doing something ‘more important.’ Take a couple of hours each week to make sure everything is filed where it should be and bills requiring payment are paid.

Negotiate Discounts for Fast Payment

If your cash flow is healthy you will likely be able to negotiate a discount with your suppliers for immediate payment of their invoices. Many suppliers appreciate quick payment to keep their own cash flow in a healthy situation and will agree to a discount of up to 2% -3% for immediate payment. If they refuse, then wait as long as you can before making payment. Your money is better in your bank than theirs, so if you have 30 days then take 30 days.

Check Your Invoices and Statements

People make mistakes, so check your invoices to make a sure you are being charged the correct amount and that any discounts negotiated have been applied. Also make sure there are no hidden charges you have not agreed. The same applies to bank and credit card statements: make sure they are correct and if you are charged for late payments try to negotiate your way out for them. Many banks will cancel charges if you are only a day or so late – but only if you ask them.

Be Careful With Credit Cards

You are best to pay your bills by check or debit card, but if you use credit cards in your business then check your interest rates and any transaction fees. Compare rates and fees and if you find better elsewhere let your credit card provider know this and ask them to match. If not, then change your card. You could use the ‘interest free’ card offers, but make sure you are never late with payments or you could be hit hard. Only use credit cards when nothing else is suitable. Use separate cards for personal and business use.

Have a Financial Cash Flow Safeguard

If you feel it worthwhile, arrange an overdraft facility with your bank so that if you have a bad month for cash flow your bills will still be paid. If you have a savings account or a credit card, you could arrange for payment to be made from these rather than have your check bounce. Discuss this with your bank manager once you have shown a lengthy period of not needing the service – you are more likely to get agreement them.

Be Aware of Auditing Regulations

Make sure you are fully aware of federal and state regulations regarding financial records and reports for auditing purposes. For how long should bills and receipts be stored, for example, or cancelled checks. It can be very costly to make a mistake. And most companies that do so only do it once!

Critical Business Financing Mistakes

If you start committing these business financing mistakes too often, you will greatly reduce any chance you have for longer term business success.

The key is to understand the causes and significance of each so that you’re in a position to make better decisions.

No Monthly Bookkeeping

Regardless of the size of your business, inaccurate record keeping creates all sorts of issues relating to cash flow, planning, and business decision making.

While everything has a cost, bookkeeping services are dirt cheap compared to most other costs a business will incur.

And once a bookkeeping process gets established, the cost usually goes down or becomes more cost effective as there is no wasted effort in recording all the business activity.

By itself, this one mistake tends to lead to all the others in one way or another and should be avoided at all costs.

No Projected Cash Flow

No meaningful bookkeeping creates a lack of knowing where you’ve been. No projected cash flow creates a lack of knowing where you’re going.

Without keeping score, businesses tend to stray further and further away from their targets and wait for a crisis that forces a change in monthly spending habits.

Even if you have a projected cash flow, it needs to be realistic.

A certain level of conservatism needs to be present, or it will become meaningless in very short order.

Inadequate Working Capital

No amount of record keeping will help you if you don’t have enough working capital to properly operate the business.

That’s why its important to accurately create a cash flow forecast before you even start up, acquire, or expand a business.

Too often the working capital component is completely ignored with the primary focus going towards capital asset investments.

When this happens, the cash flow crunch is usually felt quickly as there is insufficient funds to properly manage through the normal sales cycle.

Poor Payment Management

Unless you have meaningful working capital, forecasting, and bookkeeping in place, you’re likely going to have cash management problems.

The result is the need to stretch out and defer payments that have come due.

This can be the very edge of the slippery slope.

I mean, if you don’t find out what’s causing the cash flow problem in the first place, stretching out payments may only help you dig a deeper hole.

The primary targets are government remittances, trade payables, and credit card payments.

Start Up Business Finance

The study of all the monetary operations of a business is generally termed business finance. Every business requires financing to carry out its activities. The business needs funds for acquiring assets, purchasing raw materials or merchandise, paying the workers, the suppliers and for meeting various other obligations. This requires planning, raising, controlling and administering of funds. All these activities can be termed start up business finance.

In simple terms, business finance refers to the management of money and monetary claims within an individual business firm. Corporations, the commonly used word for joint stock companies, are the major form of business organizations. The financial operations are more complex and require more attention.

A business concern makes use of many resources like men, money, machine, materials, methods, markets, etc. Exercising proper management of resources used is necessary to attain the objective of getting maximum benefit. So management of money or finance is imperative. Besides, the resources, money or finance is the most important, since it influences all other resources. So management of finances assumes as much significance as does an enterprise.

All information related to economic, commercial and industrial activities are termed financial information. It includes information at both micro and macro levels like population, employment, inflation, money supply, foreign trade, stock market details and performance of individual business units.

Bank Loan Online and Small Business Finance

Banks that offer online loan applications usually specify the requirements, interest rates, terms of payment, and any benefits of the loan to help individuals decide if a particular loan is available and beneficial to them. This information saves the time of potential applicants and banks. A bank loan online application may also offer the option to print the application to be completed and mailed or faxed to the bank. This method ensures that the applicant’s personal information is not transmitted over the Internet and cannot be stolen by another individual.

Banks with online loan applications usually offer additional benefits to approved applicants. Individuals can view their loan details, such as interest rates, balance, and amount owed, from an online account that is set up when the applicant accepts the bank’s loan. The bank may also allow borrowers to pay their loans through a secured online system, receive monthly statements via email, and view tax statements online.

Individuals looking for small business finance US are usually referring to financing options available to small businesses in the United States. There are many government agencies on the federal, state and local levels that aim to assist small businesses with financial issues.

The largest source of small business finance in the United States is the Small Business Administration (SBA). This agency provides loans to small businesses that have been denied by traditional lenders for financing. The most common loan provided by the SBA is the 7(a) loan. In order to qualify for this loan, a business must employ fewer than one hundred employees and submit all necessary documentation. The requirements for start-up and existing business differ slightly, but both require certain business and personal financial documents as well as a business plan. The SBA does not provide loans directly. Instead, it has a guaranty program, which means that the SBA will guarantee a certain percentage of a loan provided by a lender in order to minimize the lender’s risk of loss. To apply for an SBA loan, business owners must compile all necessary documents and ask for a loan from a lender who participates in the guaranty program.

Most states and a growing number of cities also have financial agencies that work much in the same way the SBA does. Many of these agencies, including the SBA, run websites that allow business owners to access information on funding options, current news, management advice, and common business laws and terms.

Pensions and Overseas Banks Leading

Unfortunately banks haven’t really loosened their approach to lending that much; but expect to see things change soon. With financial Armageddon avoided and bank reserves heading north, things can only get easier for the business borrower.

Consider however, the other potential solutions that are available to the business borrower.

Let me give you a few scenarios that we have come across in the last few weeks with readers; but first let me explain what a commercial broker can be: By and large (nearly every situation I have seen) a commercial broker offers advice on just commercial finance and there is no requirement under their ‘regulator’ to be independent, nor are they allowed to give any advice about any financial product you may have such as your self invested personal pension, your investments or tax position. This does not fall within their scope of advice and they are not trained to give this advice.

This is particularly worrying in that a pension is often the best way to buy your commercial property and a residential mortgage can often be the best place to raise deposits or finance yet the commercial broker in the above instance will not be able to assist.

An Independent Financial Adviser is required to give independent financial advice but most importantly they can look at every potential solution as the examples below will show:

A reader called us asking if he could raise cash for his business. He owned his commercial property with a mortgage but his bank would lend him no more. He hated pensions yet his pension fund had nearly enough to buy the property from him. So we used his pension and raised a small mortgage inside his pension so it had enough money to buy his property and he now pays a rent to his own pension. He now has a tiny borrowing within his pension, has £112,000 in his bank account and can communicate rather differently to his bank, who now owe him.

In another situation we had a business owner who had a residential mortgage and he also had a director’s loan account within his business. A director’s loan account is where the business owes the director money either through capital he injected or through income perhaps he has not taken; but clearly already been taxed on. Directors tend to leave the cash in the account to assist with cash flow.

We advised he take the director’s loan account from his business, then repay his personal mortgage. He would then take out the same mortgage and inject back into the business. The net effect is the same in that he now has a mortgage of the same amount and the director’s loan account is the same value.

However, because it can be seen that he has injected this cash into the business he will now be able to claim tax relief on the mortgage interest payments. Cute.

All too often business’ approach their bank in a position of weakness. For example they approach a bank with too small a deposit and as such the rate and terms are hiked northwards. If they had raised cash through their pension or even against their residential property (often at much more competitive rates) they would be in a position of power to negotiate the best fees and terms.

Furthermore we are now seeing many more foreign banks come to the market place. Of the most active in London are the German and Asian banks with Germany being easily the biggest players. With 85% of all transactions being overseas, it’s easy to see why.

I hope that helps but in simple terms make sure you seek Independent advice from someone who can cover all areas in-house.

Functions of Business Finance

  1. Initiating Business: Finance is the first and fore most requirement of every business. It is the starting point of every business, industrial project etc. Whether you start a sole proprietary concern, a partnership firm, a company or a charity institution, you need ample amount of finance. It is equally important for profit seeking and non-profit activities. It is equally important for a multinational organization and for a free dispensary.
  2. Purchase of Assets: Finance is needed to purchase all sorts of assets. Even if credit is available some down payment is to be made. Mostly finance is needed at the start of business for the purchase of fixed assets. These fixed assets consume a large amount of initial investment of the entrepreneur, so he may face liquidity difficulty in running day to day affairs of the business.
  3. Initial Losses: No business attains high profit on the first day of commencement. Some losses are normal before the business reaches its full capacity and generate enough revenue to match cost. Finance is necessary so that these initial losses can be sustained and business can be allowed to progress gradually.
  4. Professional Services: Certain business need services of specialized personnel. Such personnel have rich experience in specialized fields and they can provide useful guidance to make business profitable. Nevertheless these services are costly. Finance is always needed so that services of such professional consultants can be hired.
  5. Development: Business is always exposed to change. New innovations and emergence of new technologies replaces old techniques out of market. So in order to remain in the market, it is needed to keep the business well equipped with all emerging tools and techniques. This required finance. New technology is always expensive as it is better than others. So finance is needed to purchase new equipment and keep the business running.
  6. Information Technology: Information technology has now changed the geography of the business battle field. The home markets have now extended virtually to other comers of the world. The whole world can be your customer or competitor. To face such a fierce competition, IT is needed. Skills and competency in IT can perform miracles. But finance is again the decisive factor. It is very much needed to incorporate expensive IT products in the business.
  7. Media War: The advertisement and promotion have now become a vital elements for the success of business. The way a businessman approaches a customer and convinces him to purchase his product has become more important than the quality of product. With advertisement on International media, a businessman can reach the minds of millions of people around the globe. However, advertisement is a luxury which every business can’t afford. Huge finance is required to meet advertisement expenses.

Avoid Small Business Finances Nightmare

Keeping track of your profit and loss is absolutely necessary to maintaining the financial health of your business. Simply put, without reviewing your books every so often, you have no real way to tell if you’re even turning a profit, let alone if you’re in the red. In fact, a whopping 63% of small businesses don’t survive even six years due to financial neglect and limited financial training-and most work-at-home people fail before six months time!

Further attributing to these small business casualties is the reality that many of them do not have an accountant that understands online business expenses. All accountants are not created equal. While some might specialize in tax representation, others are well versed in the insurance industry. Think about it though, would these types of accountants know what an affiliate payment is, or how much of your bandwidth fees you can reasonably write off?

This aspect of running a business can be intimidating, but don’t be discouraged! This article will illustrate four very effective ways to help prevent losing your business to these common oversights. Please keep in mind that I am not a certified accountant, and that these are only my suggestions to help you maintain the financial aspect of your business.

Find an Accountant That You Can Work With

As mentioned previously, not every accountant is going to be a good match for your business. If you hire an accountant who has years of experience with brick-and-mortar businesses, they may not understand the costs of running an online business.

You could, in turn, pay more taxes at the end of the year because your accountant did not recognize the potential tax write-offs that an online small business could benefit from. Did you know that your home office tools just might qualify as a tax write-off? Your computer, your business telephone line, even the entire room could possibly be written off at the end of the year.

So how would you go about finding the best accountant for the job? Request some referrals from people that you trust, and set up a couple of interviews. One size does not fit all in this case, however. You’ll want to know a few things about your prospective accountant:

  • Experience – How long have they been working with online small businesses, and to what extent? Do they understand the difference between affiliate commissions and payroll?
  • Hypothetical situations – Write an in-depth list of palpable risks and possible hurdles that you expect your business to be subject to in the long run. Ask the accountant how they can prevent or even benefit from these scenarios. Let them demonstrate why you should hire them.
  • Expertise – This accountant is great at crunching the numbers, but can they help you plan your business? Provide helpful and readily applicable advice? A good accountant can accomplish all this and more.

Pay special attention to how the accountants present themselves, and especially how they address your questions and concerns. If the accountant is not receptive to your business concepts, they do not have a place on your financial team.

Ask Your Accountant to Help Advise Your Small Business, Sole Proprietor, or LLC

Additionally, your accountant is a valuable advisor to have when considering important business options. Not only can they set up your business records and books, but they can be indispensable when it comes to deciding whether or not to expand, whether or not to hire new employees, and providing you with a complete financial forecast.

Because your accountant maintains your business finances, they will be able to counsel you about the risks and benefits of forming an LLC, or remaining the sole proprietor. This is a big step for any small business, and your accountant would be best suited to aid you in making this decision.

Meet With Your Accountant Regularly

Your accountant is a great asset to your company, but you cannot maximize your financial potential if you do not meet with them regularly. I cannot stress enough the importance of this-schedule quarterly, if not monthly meetings with your accountant.

Your finances are of the utmost importance, therefore careful monitoring should not be put off until tax season. This is a common folly that could ultimately cost you your business! Your accountant may find ways to save you money on a frequent basis, not just around tax season.

Meeting with your accountant consistently can help you ensure that your accountant is handling your financial needs in an acceptable manner, and keep you abreast of every single detail on your financial horizon.

Business Finance for Growth

By obtaining finances from a specialist business bank, a company can get access to the additional resources that they need to fund growth. Such funding is structured, and repayments can be built into the expansion plan. This means that the company can manage its growth as effectively as possible and be able to achieve its long term goals more quickly.

The bank will want to know as much as possible about your overall plans, and you may be expected to provide security against the borrowing. For smaller firms, this may mean that the assets of the owner are used as collateral.

Obtaining business finance from a bank is a relatively straightforward process. The bank will want to know as much as possible about your business and your goals so that they can put together the best possible lending package to meet your needs. With this in mind, it is important when approaching your business bank about borrowing money that you are clear about what your goals are, and how you plan to achieve them.

Small Business Finance

Develop a business plan and loan package that has a well developed strategic plan, which in turn relates to realistic and believable financials. Before you can finance a business, a project, an expansion or an acquisition, you must develop precisely what your finance needs are.

Finance your business from a position of strength. As a business owner you show your confidence in the business by investing up to ten percent of your finance needs from your own coffers. The remaining twenty to thirty percent of your cash needs can come from private investors or venture capital. Remember, sweat equity is expected, but it is not a replacement for cash.

Depending on the valuation of your business and the risk involved, the private equity component will want on average a thirty to forty percent equity stake in your company for three to five years. Giving up this equity position in your company, yet maintaining clear majority ownership, will give you leverage in the remaining sixty percent of your finance needs.

The remaining finance can come in the form of long term debt, short term working capital, equipment finance and inventory finance. By having a strong cash position in your company, a variety of lenders will be available to you. It is advisable to hire an experienced commercial loan broker to do the finance “shopping” for you and present you with a variety of options. It is important at this juncture that you obtain finance that fits your business needs and structures, instead of trying to force your structure into a financial instrument not ideally suited for your operations.

Having a strong cash position in your company, the additional debt financing will not put an undue strain on your cash flow. Sixty percent debt is a healthy. Debt finance can come in the form of unsecured finance, such as short-term debt, line of credit financing and long term debt. Unsecured debt is typically called cash flow finance and requires credit worthiness. Debt finance can also come in the form of secured or asset based finance, which can include accounts receivable, inventory, equipment, real estate, personal assets, letter of credit, and government guaranteed finance. A customized mix of unsecured and secured debt, designed specifically around your company’s financial needs, is the advantage of having a strong cash position.

The cash flow statement is an important financial in tracking the effects of certain types of finance. It is critical to have a firm handle on your monthly cash flow, along with the control and planning structure of a financial budget, to successfully plan and monitor your company’s finance.

Your finance plan is a result and part of your strategic planning process. You need to be careful in matching your cash needs with your cash goals. Using short term capital for long term growth and vice versa is a no-no. Violating the matching rule can bring about high risk levels in the interest rate, re-finance possibilities and operational independence. Some deviation from this age old rule is permissible. For instance, if you have a long term need for working capital, then a permanent capital need may be warranted. Another good finance strategy is having contingency capital on hand for freeing up your working capital needs and providing maximum flexibility. For example, you can use a line of credit to get into an opportunity that quickly arises and then arrange for cheaper, better suited, long term finance subsequently, planning all of this upfront with a lender.

Creative Business Financing Techniques

Peer-to-peer lending is exactly what it sounds like-one person lending money to another. There are several web sites out there that cut through all the red tape of the banking system, allowing more people to receive the small amounts of funding they need. Prosper.com is an excellent example. The website serves as a digital loan marketplace, where multiple lenders offer bids and compete (think eBay) to fund members who need loans. Once acceptable terms are reached, the debtor receives their funding, and Prosper handles all administrative tasks. The creditors’ outstanding loan assets can then be traded as securities through the company’s marketplace. These features are what make Prosper an excellent option for companies who need small amounts of funding.

Another possible source of small business financing through peer-to-peer lending is LendingClub.com. A similar model is used on this site as well-by introducing more competition on the lender’s side, consumers are able to receive lower rates on their loans. Conversely, these websites are also investment opportunities for people who would like to provide financing for others.

These two sites primarily focus on lending to people in the United States. However, they’re a part of a larger global trend toward microfinance. Microfinance is the practice of giving very small loans to entrepreneurs who would otherwise be unable to get loans in the traditional banking system. This trend is particularly focused on lending to entrepreneurs in developing nations. Sites such as Kiva.com operate by lending money to small businesses and tradespeople for the purpose of long-term poverty relief. It is funded by individual lenders and offers loans as small as a few hundred dollars.