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