| Have you ever wished there were red | | | | interest in a year. The lower interest |
| flags to alert you when your business | | | | rates are important, but so is the term |
| was heading into a slump? Maybe you can | | | | of the loan. Businesses should keep the |
| find a miracle tool that would alert you | | | | term as short as possible. |
| before wading into uncharted waters | | | | Past Due Notices |
| where that cause so many small | | | | This is the ultimate red flag or warning |
| businesses to sink? The good news is, | | | | sign. It signals to the business owner |
| there are tools that will do just this. | | | | that they have lost a grip on the |
| Money Curve | | | | business's cash flow. No matter how |
| Following the money curve is more | | | | much, or how little, a business has |
| difficult than it appears. The first | | | | coming in, it is vital to ensure that |
| step is to learn how to budget. One of | | | | the business is self sustaining. |
| the most common business mistakes is | | | | Stealing from The Company |
| spending money as it comes in and | | | | The company should be seen as a separate |
| leaving nothing for major projects such | | | | entity. Its cash belongs to it. A |
| as an advertising campaign, upgrading | | | | business needs to be nurtured. In the |
| equipment, or starting a passive stream | | | | brick and mortar world, a business |
| of income. | | | | should be self-supportive for the first |
| Cash management starts with the ability | | | | five years. |
| to budget money and prepare a cash flow | | | | Traditionally, business owners never |
| projection. If this tool will tell a | | | | expected the business to support the |
| bank whether the business is a good | | | | family through this time. Internet |
| credit risk, then it will tell the | | | | businesses have a shorter span, but they |
| business owner how healthy the company | | | | still need to be nurtured. |
| is. | | | | Every time money is removed from the |
| The second half of the strategy is the | | | | company the business owner should tack a |
| Cash Flow Statement. The projection lets | | | | 'red flag' to their cash flow charts. |
| the owner calculate what they need in | | | | All revenue should be returned to the |
| the future. The statement tracks the | | | | business until it is self sustaining |
| money that goes out. The statement can | | | | with enough 'cash in reserves' to avoid |
| be created based on the actual cash, | | | | at least on emergency, and support |
| including personal money, or it can be | | | | expansion. |
| based solely on the business's books. | | | | How to Avoid Problems |
| Watch for Falling Sales | | | | Get Help: There are thousands of |
| Never wait until the cash flow starts a | | | | qualified professionals who freelance |
| downward trend. A healthy business | | | | for a fraction of what a company would |
| should have a gradually upward curve. A | | | | charge. |
| level or wavy curve is a sign of | | | | Be Truthful: Avoiding issues, brushing |
| trouble. An advertising campaign should | | | | over problems, and lying to people who |
| be started at least six months before | | | | can help should all be considered |
| the cash flow starts a downward turn. | | | | warning signs. When you run into |
| Another thing to measure is profit | | | | financial trouble, then head to the |
| margin. Sales and profit margins are | | | | bank. They have a lot in stake and will |
| different and can be totally unrelated. | | | | help, even if the business owner hasn't |
| Sales and Revenues are the money that | | | | borrowed any money. |
| comes into the business. Profits are the | | | | Save Money: Save money, even if it only |
| money left over after the expenses are | | | | means sticking $1 into a jar every week. |
| withdrawn. | | | | Cut Costs: There are some vital |
| Two companies may earn $10 000. One | | | | questions to ask before spending any |
| earns $1000 profit, and the other earns | | | | money. Do I need it? Can I get it |
| $5000 profits. Calculate the profit | | | | cheaper? Am I buying this because I |
| margin. Create a 'cut off' rate. | | | | 'want' it? How long can I do without? |
| Anything below that level should be | | | | What problems will I encounter if I |
| considered a 'warning.' | | | | don't buy this?' |
| Borrowing | | | | Emergency Plan: This is a plan of action |
| Borrowing money to pay debts is a sure | | | | that you'll use to help avoid problems. |
| sign of trouble. This doesn't mean that | | | | There are several ways to use these |
| it is wrong to borrow. The amount | | | | tools. One business owner can keep a |
| borrowed should never climb above 20% of | | | | chart. Another one may put red pins on a |
| revenue. Any amounts above this should | | | | cork board. Another will create a |
| be considered a 'warning' and be | | | | strategy plan to solve the problem. |
| corrected as soon as possible. | | | | Whatever is used, it should be |
| Another aspect of borrowing is to | | | | considered a vital part of business |
| calculate the amount of money spent on | | | | success. |