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Business Owner Challenges

Cash Flow/Capital

You’ve probably heard the saying that “cash is king,” and that truth applies whether you own a business or not. Most discussions of business and personal “financial planning” involve tomorrow’s goals, but those goals may not be realized without attention to cash flow, today.

Management of available cash flow is a key in any kind of financial strategy. Ignore it, and you may inadvertently sabotage your efforts to grow your company or even build personal wealth.

Cash flow statements (CFS) are important for any business. They can reveal so much to the owner(s) and/or CFO, because as they track inflows and outflows, they bring expenditures to light. They denote your sources and uses of cash, per month and per year. Income statements and P&L statements may provide inadequate clues about that, even though they help you forecast cash flow trends.

Cash flow statements can tell you what P&L statements won’t. Are you profitable, but cash poor? If your company is growing by leaps and bounds, that can happen. Are you personally taking too much cash out of the business? That may inadvertently transform your growth company into a lifestyle company. Are your receivables getting out of hand? Is inventory growth a concern? If you’ve arranged a loan, how much is your principal payment each month and to what degree is that eating up cash in your business? How much money are you spending on capital equipment?

A good CFS tracks your operating, investing, and financing activities. Hopefully, the sum of these activities results in a positive number at the bottom of the CFS. If not, the business may need to change.

In what ways can a small business improve cash flow management? There are some fairly simple ways to do it, and your CFS can typically identify the factors that may be sapping your cash flow. You may find that your suppliers or vendors are too costly; maybe you can negotiate (or even barter) with them. Like many companies, you may find your cash flow surges during some quarters or seasons of the year and wanes during others. Maybe you could take steps to improve it outside of the peak season or quarter.

What kind of recurring, predictable sales can your business generate? You might want to work on the art of continuity sales – turning your customers into something like subscribers to your services. Perhaps price points need adjusting. As for lingering receivables, swiftly preparing and delivering invoices tends to speed up cash collection. Another way to get clients to pay faster: offering a slight discount if they pay up, say, within a week (and/or a slight penalty to those who don’t). Before you go to work for a client or customer, think about asking for some cash up front (if you don’t do this already).

Traditional thinking may have you looking into refinancing your mortgage or using business credit cards to provide capital when needed.  We'd like to introduce you to a concept you may not be aware of that is even more relevant to business owners than it is to the average person.

Debt

Nearly all business are going to acquire some debt as they seek to retain inventory, purchase equipment, etc.  Some debt is acceptable as long as there is adequate capital to and cash flow to support it.  However, debt can quickly get out of hand if not handled properly.  In fact, it can destroy the business altogether.

A business must always have a plan for how they will manage their debt through a variety of market cycles and circumstances.  One of the most efficient and effective ways of accomplishing this is through the Private Reserve Strategy.

Taxes

Taxes for a business owner can be very, well... taxing.  It's difficult to walk the line between creating expenses just to avoid taxation and enjoying the win while letting Uncle Sam take his cut.  Certainly it is prudent to maximize all reasonable deductions and credits when they're available.  Working with a competent tax advisor can be worth its weight in gold.

One word of caution, however.  Some "deductions" are not permanent.  To get a deduction today only to have to pay the tax at a future date where the rate and threshold is unknown is actually a deferral rather than a deduction.  Often times, business owners have been trained by the financial industry to defer as much taxation to the future as possible.  It may be time to rethink that idea in light of the demographic shifts going on and in light of the current tax environment.  Click below for a deeper dive on this issue.

Business Cycles

Business cycles can be very challenging to business owners due to the effects of supply and demand and how those businesses up and down the supply chain as well as end consumers are effected by the overall economy.  Different industries can be affected at different times, by different circumstances, and in different ways.  It is important for a business to be nimble enough to adjust to these inevitable cycles and withstand the storm.  Often, the key to weathering these cycles can be access to adequate capital, as covered above.

Attracting and Retaining Quality Employees

One of the most frustrating parts of being a business owner is the inability to hire and retain good people.  The business does not have an unlimited budget for labor, yet without the right people to help propel the operation forward, the business can actually drift backwards.

To make matters worse, the group health insurance system for small business in the United States has been in a state of turmoil for several years and no one seems to have the answers.  Employees and their families need coverage and business owners by and large want to provide it, but they're caught between a rock and a hard place.

So what can a business owner do to differentiate themselves from their competition to attract and retain the best talent?  There are a number of programs that businesses can implement that will help sell them to attractive employees, and there can be tax benefits to the business if set up correctly.

Group Retirement Plans

Group Retirement Plans

  • 401(k)
  • 403(b)
  • 412(i)
  • SEP
  • SIMPLE IRA
  • Profit Sharing
  • Cash Balance
  • Defined Benefit
Learn more
Non-Qualified Plans

Non-Qualified Plans

Plans designed for protecting the business from the loss of key employees and/or providing for a set of "golden handcuffs" to incentivize the most valuable employees to stay.  These plans typically do not have the same non-discrimination rules that other types of company benefits are required to follow.

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Worksite Financial Education

Worksite Financial Education

Help your employees get the information they need to get past their financial struggles and become focused and engaged in their job.

Learn more

Competition

Competition is a given for virtually every business.  While business owners must be wary of their competitors taking their market share, competition can also be a good thing.  One important benefit of competition is a boost to innovation. Competition among companies can spur the invention of new or better products, or more efficient processes.  Competition also can help businesses identify consumers' needs—and then develop new products or services to meet them.

The key is to always stay ahead of the curve.  When you identify and solve the pain points of your customers, you will be in a great position to fill the void that your competitors are lacking in.

Building a niche can give you some breathing room when it comes to competition.  Create the space and become the unchallenged leader in that space.  This will give you greater profit potential if you also allow your competitors to build their own niche.

Finally, be innovative.  Never allow yourself to be the king of the hill - even if you are.  Don't reinvent the wheel per se, but never stop looking for ways to improve your products & services, your processes and your methods.  If you do this and your competitors sit down to take a rest, you will be long gone by they time they realize what's happening.

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