Way to Grow

Experiencing Good Times? Watch Your Spending

Once your business is up and running and showing a profit, the real test of your management ability kicks in. Gary Bourgeault says that, "One of the defining factors between great and average businesses is how management handles the business during the more financially successful times."

Why would this be so? Because, when sales are good, it is more challenging to be disciplined financially. At last, you think, you can spend on the "wants" in addition to the "needs". But now's an even more critical time to watch how much you're spending and what value it will bring to your business. Without the self-enforcing discipline of hard times, you could spend yourself right out of business.

Know Your Cash Flow

Scott Allen says more businesses fail for lack of cash flow than for lack of profit. Well, sure. If all your revenue comes in on December 31, you'll probably incur a lot of debt throughout the year to pay for operations. Unmanaged cash flow is expensive and can potentially put you out of business even if you have customers. Or, as Allen says, "Simply put, it doesn't matter how much money is coming in the future if you don't have enough money to get from here to there."

The trick is to have income flowing in sufficient amounts over each month to cover payments that must be made on expenses during that same time period. Allen's post offers tips on how to project cash flow as well as links to a cash flow worksheet and a planner.

Knowing how much money you'll need for expenses, and when you'll need it, allows you to focus on negotiating a more even income stream. (Can you get an advance from a consulting client? Do you need to start requiring customers to make deposits on a purchases that will be delivered later?) Or it may inspire you to look for a capital infusion. And in the end, it makes you smarter about how -- and when -- you spend your money. Reducing expenses is one way to beef up your cash flow.

Increase Cash Flow -- Grow Your Business

Well, yes, increasing revenue and getting more customers are important to growing your business. Better yet, increase your cash flow. Arnold Cortez of the Small Business Finance Blog offers 9 Ways to Increase Cash Flow for Small Businesses. Any one of the nine could help. Do more, and grow more. Here are Arnold's "9". 

1. Use cashflow sales checklists
2. Use cashflow payment checklists
3. Increase your prices
4. Invite your past customers to buy from you again
5. Change your trading terms
6. Pay out slowly
7. Accept only 'good' customers
8. Use only profitable marketing
9. Get someone else to endorse you

I'll leave it to you to link to his site (which I found via The Cash Flow Blog) for the details.

Deducting Startup Costs

Joyce Rosenberg of the Associated Press wrote a good article recently about deducting startup costs. It was in the print edition of the San Francisco Chronicle, but I couldn't find it online there. However, The Daily Herald's (Everett, WA) online HeraldNet picked up the syndication.

Rosenberg alerts startups filing their first tax returns this year that effective October, 2004, you can write off $5,000 of your startup costs --  market research, advertising, employee recruiting, lawyers, accountants, consultants, rent and office supplies required to start operation. The deduction, known as Section 195, requires that you file a Form 4562 Depreciation and Amortization schedule to declare that you are taking the deduction for startup costs.

She goes on to discuss the issue of when startup costs turn into operating expenses. It depends, she says, on when you start being "in business". If you have started taking revenue, it's pretty clear you're in business. In any event, this is something to discuss with your accountant.

Financial Accounting 101

I'd wager the majority of people who start businesses do not have a finance background. It certainly isn't essential that you do, but your business will be better off if you know some basics, like how to read a financial statement. Germain Hosten posts a great little summary of what financial accounting is and why you should care.

Valuing Assets You Are Purchasing

AllBusiness.com has a thorough article on Assigning a Price to Business Assets, a must-read for anyone purchasing business assets. Topics include:

• Cash and cash-like assets
• Tangible property
• Intangible property
• Goodwill

Among the points the article makes are:

1. Bring in a professional appraiser when the purchase price is over $100,000.
2. Try to make the allocation of assets favor your tax situation (Read the article and you'll understand).

I recommend this lengthy (for the Web) fact-filled article for anyone who may be purchasing the assets of an existing business.

Know When to Fold 'Em

This is just good sense in any investment. Successful stock investors establish a floor price on a stock, and they sell when it goes below that. Your business is an investment, too, and you should have a "floor" below which you won't go, too.  That isn't as negative as it sounds.  For the weak-hearted, it may keep you from giving up to soon.  But it will also keep you from hanging on disastrously long.

I was reminded of this by Ks Blog.

Startups on the Cheap

When you're starting out, every penny counts. Well, keep thinking like that even when you're past the startup stage, but it's critical in the early days. Forbes.com has good tips that can help you stretch the dollar:

• Always ask for discounts and always negotiate.
• Don’t own; borrow or lease instead
• Look for opportunities to barter
• Partnerships
• Analyze all major expense line items
• Don’t be too cheap

Tip of the hat to Dane Carlson.

How to Borrow from a Retirement Account

Daniel Lamaute in HomeBusiness has good news for you if you're starting a business and wish you could use your 401(k) to help finance it. "Most large companies 401(k)'s have a loan feature for their employees. But once you leave the company to start your own business you lose the privilege to borrow from their 401(k)."  However you can roll over your old account from your former employer to a new self-employed 401(k), which allows you to borrow up to $50,000 tax free.

(Tip of the hat to Dane Carlson)

Time to Get Tax Help

I really hope this isn't you!  Business Week quotes Marlene Frank, a Chicago CPA: "Many...small businesses fall into the very human trap of hoping to get their affairs in order before they see a CPA or tax attorney, but never getting around to it because they're juggling too much."  The author, Joyce Rosenberg, goes on to say that if you don't have the time to sort out your paperwork and plug the numbers into a software application, hire someone to do it!  [Emphasis added.]

And what if you find you owe a big tax bill and don't have the money to pay it?  Not paying is a fight you will lose. Just don't go there. Once again, hire someone who can help you work out a payment plan with the IRS.