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