Ask The Money Coach

Archive for the ‘Small Business’ Category

Q.  Do you suggest attempting to take out a business loan to finance a business that you have invested in although credit may not be good, personally?

A. No, I don’t suggest trying to get a business loan to finance your business operations when you know your personal credit isn’t good. You’ll simply wind up generating an inquiry on your credit report, which will further hurt your credit rating, and still wind up getting turned down by the bank for a loan.

Read: How Inquiries On Your Credit Report Hurt Your Credit Score

Banks have gotten a lot stricter about to whom they extend loans and credit. And that goes for small business owners too. Invariably, your personal credit record is reviewed when a bank is considering a loan application, and you also are often asked to sign a personal guarantee for that loan.

Here are six quick tips for entrepreneurs trying to finance a start-up or expand existing operations:

1.     Do seek “trade credit” from vendors and suppliers. Too many entrepreneurs dream of going to a bank and getting a business loan or line of credit for their enterprise, but maybe you don’t need a traditional bank loan at all to launch or grow your business. If you can get your vendors and suppliers to agree to provide you with trade credit — i.e. the ability to pay for goods and services over time — you can creatively and more frugally run your operation.

2.     Do request major funding long before you need it. Realize that getting money from “angel” investors and venture capitalists can be a longer-than-expected process; it often takes 6 to 12 months to secure. See the “How to Get Funding from Angel Investors” article from the Wall Street Journal.

3.     Don’t feel compelled to buy everything. Ask yourself: Do I really need to purchase equipment, furniture, computers, etc? You may be able to get by, temporarily, by bartering, or even by renting and leasing equipment. And that’s OK!

4.     Do get “buy in” from your spouse/partner. Many new (and veteran) entrepreneurs will tell you one of the biggest dream killers they’ve encountered is an un-supportive spouse. Make sure your partner is on board with your entrepreneurial ambitions. If not, you’ll face a host of financial arguments and money-battles that will be counter-productive to you building a business.

5.     Don’t let your personal credit rating lapse. Amid the current environment, your credit standing is more important than ever. Guard it jealously. Pay all bills on time. Only take out loans/credit when you truly need it. The higher your FICO scores, the better loan rates and terms you’ll get when it is time to do business with a bank —or even just getting a corporate credit card. See more on how to get your financial house in order.

6.     Don’t “bet the farm.” Smart entrepreneurs don’t “roll the dice” and risk everything. They take risks, but they’re calculated risks. Don’t gamble everything: 100% of your savings, your credit, putting your home up, etc. in the hopes that you’ll create a successful business. Be willing to invest in your business of course, but not foolishly, and not at the expense of everything else.

Recommended Reading: Perfect Credit: 7 Steps To A Great Credit Rating

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The Equifax Small Business web site allows customers the ability to easily and immediately buy small business credit reports or subscribe to monitoring services on businesses in the United States. Customers can register and purchase within seconds using a major credit card. Unlike traditional business credit reporting services, Equifax Small Business goes beyond payables and trade account information and eliminates the bias of self-reported financial information and selective provisioning of business references. This tool can also be used to pull a credit report for your own business so that you can see what others may find out about your company. Another way to use this site is to check out the credit file on any company you plan on doing business with in the future. Wouldn’t it be helpful to know that the building contractor you are about to hire is deep in debt and may be desperate for your business?

The Equifax Small Business website boasts over 24 million business records. Get Equifax Business Credit Monitoring Now!

Have Questions About Your Business Credit Report?

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The two most important jobs you have as a business owner is getting business and getting paid. Being a bill collector is one the toughest jobs you’ll have as an entrepreneur.  But if you take control of the situation up front, you can minimize any delays with payments.  The key thing to do is make sure you are not hit with any surprises. Does your customer pay vendors net 45?  You need to know. Here are some tips that I have used to in my business to manage cash flow:

1) Make sure you understand at the signing of a contract the procedure for getting paid. Ask about their accounts payable policy. Ask about whether you can be paid via electronic funds transfer, you get your money much faster this way.  Then make sure you understand what you need to do to facilitate getting you payment.

• How does your invoice need to be formatted?
• Does your EIN number need to appear on the invoice?
• Do you need to file a W-9 IRS form to become a new vendor?
• Do you need to have an EDI system in place to get paid?

Note: An EDI system is Electronic Data Interchange (EDI), which is a way to submit invoices and receive payments electronically. If you are doing business with a major corporation or manufacturer, they may require this type of system for doing business with them. The great thing about EDI systems is that all of your transactions are web-based and available anytime and anywhere via the Internet.

2) Develop a contact in the Accounts Payable department. You never want to annoy your actual customer with a payment issue until you have no other alternative.  If you start out knowing a name in accounts payable its makes things so much easier if there is an issue. Call this person at start of the contact to ask them what the procedure is for becoming a new vendor in the system and getting that first invoice paid.

3) Develop a discount incentive program for paying early. Please not do not discount for paying Net 30! That is what your customers are supposed to do.  Offer a 2% – 5% discount for Net 10 or Net 15 payment for your customers depending on the amount of the contract.

4) Make sure you get a deposit up front and create an incremental payment schedule. You should offer your clients a payment schedule such as 50% at the start / 25% mid way / 25% on delivery or 25% / 25% / 25% / 25%. Do not even start work without a signed contract, purchase order and a deposit.

5) Start making collection calls at 30 days to inquire about the status of your invoice. In this economy, people will easily ignore an email, letter or fax.  Do not ever be afraid to pick up the phone to ask about your money. Do not wait 45-60 days to initiate collection procedures. The polite, but squeaky vendor always gets the check.

Melinda F. Emerson, SmallBizLady, is one of America’s leading small business experts, whose mission is to end small business failure.  Forbes Magazine recently named her one of the Top 20 women for entrepreneurs to follow on Twitter where she hosts #SmallBizChat, Wednesdays 8-9pm ET for emerging entrepreneurs. She publishes a resource blog www.succeedasyourownboss.com and is also the author of the national bestseller Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works. (Adams Media)

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It’s great to have a nice website, a regular sales process and glossy business cards for your small business. All of these things steer sales, and sales is the engine that drives business. You must look credible in order for a corporation to do business with you, and you must have relationships to make a sale, and people must know where to reach you so business cards are important–but before you make any decisions in your business—you need up-to-date financial information about how your business is doing under the hood.

By the 15^th of every month, you should have three financial statements which should include a balance sheet, income statement, and a statement of cash flow. These statements will outline the previous month activity including what sales were made, who has paid you and who you owe, and how much cash you have on hand to make it through the next month.

Once you put a process in place to generate monthly financial statements (such as hiring a bookkeeper to reconcile your accounts monthly and generate the statements), get into the habit of referring back to your financial statements and annual budget for information. Do not make business decisions based on what the account balance is online. Also, do not make decisions based on what you want or think you need for your business. Ask yourself or your staff WHY three times before making any purchases.

Always refer back to your budget and see what it says you have planned to spend, before committing to purchasing equipment, hire consultants or plan on attending any conferences.  Also never purchase a booth at a trade show the first year you plan to attend—walk the show the first year. Talk to the other vendors about whether they got their money’s worth.  It costs a lot of money to attend conferences—be sure it’s the right place to engage your niche target customer.  Here are four financial tips to keep in mind in your small business.

Use a budget—Manage your business with an annual budget. In October, start working on the budget for the following year.

Monitoring profit margins—It’s fine to know your gross revenues, but in the end, it’s really all about the profits you keep.  In every sale, know how much money is for you.

Understanding the cash position daily—Cash is king. A business with contracts and no cash will soon be out of business.

Know your numbers by the 15^th of every month—Do not wait until tax time to deal with your financial statements.  Have them complied monthly, so that you can know where you stand as a business.

Melinda F. Emerson, SmallBizLady, is one of America’s leading small business experts, whose mission is to end small business failure.  Forbes Magazine recently named her one of the Top 20 women for entrepreneurs to follow on Twitter where she hosts #SmallBizChat, Wednesdays 8-9pm ET for emerging entrepreneurs. She publishes a resource blog www.succeedasyourownboss.com and is also the author of the national bestseller Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works. (Adams Media)

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