By Paul Dowen
Now that the election is over and the fiscal cliff has been somewhat averted, or at least delayed, we have the information necessary to concentrate on running our organizations.
We can focus our attention on increasing customers, better serving our existing customers, reviewing and updating business plans and budgets, improving cash flow and contending with health care reform. Small businesses are the back bone of the American economy, and it will be through their efforts that our economy continues to grow.
To remain viable in today’s economy we need to maintain our current customers while finding ways to attract new ones. Maintaining relationships with business associates through the Chambers of Commerce, volunteering on not-for-profit boards and joining membership organizations such as Rotary, Kiwanis and Lions Clubs are effective and worthwhile.
The internet and social media have also opened up many new possibilities. Whether you use Facebook, LinkedIn, or Twitter, keeping your business present and up to date on the internet is imperative. As part of the older generation I often find myself behind the times. When I want to find information, I still think the old fashioned way. For example, I still attempt to use the phone book, but this has become frustrating as I find fewer businesses are spending the money to list their business.
My younger associates just Google what they want. I find myself slowly adapting and searching the internet for possible solutions to what I am looking for. Many businesses are not paying attention to how “easy” it is to find them. If I am looking for a particular type of vendor, typically I only review the first page of search results before I move on. Not having a company website, or having an outdated stale site, is a lost opportunity to attract new customers. If you don’t have your own website and/or a presence on social networking platform or if you cannot properly maintain the presence that you have on the web, seek out those individuals or businesses that specialize in website design and web presence for help.
Planning is imperative for all of us. We would never go on a vacation without some type of plan of where we want to go, how are we going to get there and how are we going to pay for it. So why would we enter a new business year without planning? We know certain expenses are going to increase no matter what we do but other expenses are controllable.
Preparation of a yearly budget is a process that all businesses should be doing. If done properly the process requires you to think about each and every expense item and determine, first is it necessary and, if so, how can it be controlled. Some expenses are fixed and some are variable based upon sales.
Once you have examined the expense side you need to forecast sales to complete the budget. Determining the sources of sales is the challenge. We need to find ways to track where sales comes from. Why do they choose to do business with us versus our competition? How do we sell more to current customers? Where do we find more customers?
Answering these questions is a must to stay viable in today’s economy. Taking the time to plan each year and then taking time to measure the budget versus actual numbers will allow you to make the necessary changes to your business to maximize your ability to make a profit.
Now that our budget is complete we need to look at our cash flow forecast. We have estimated our income and expenses and we know our expected profit but how does that relate to cash flow? The cash flow forecast is entirely different from an operating budget. You have to examine how your customers pay you. Is it in cash, by credit card or on credit with terms? With the tightening of cash flow from our customers’ customers, our customer may not be paying us as promptly as they once were. Keeping up on the credit terms and ensuring prompt payments has become a more challenging task.
Many businesses look at the cost of accepting payment by credit card and determine that cost is too high therefore do not offer that option. Instead they need to consider the cost of untimely payments to cash flow compared with the cost of the credit card processing. What discounts from your vendors are you forced to pass up because you do not have funds to take advantage of those savings?
What accounts have you written off this past year because the customer went out of business before paying you? How much interest expense have you incurred by drawing on your line of credit this past year? All of the lost discounts, uncollectable accounts and some interest are costs of poor cash flow that can be minimized by accepting credit cards payments.
Did you know that credit card fees vary by the type of credit card used? Not simply whether it’s a Visa, MasterCard, American Express, etc., but by the type of Visa, MasterCard, etc. Periodically compare the pricing of your credit card processing company to see if your rates are competitive. If your rates and fees are too high, ask your processor to lower the rates, and if necessary, shop for a new processor. You may be surprised at the savings that you could receive.
The cash flow forecast must also consider the cash required to acquire new equipment, increase inventories and pay down existing debt. Can you afford to pay cash for the equipment or do you need to finance it? Financing is always easier and cheaper when you are initially buying the equipment but the overall cost is more expensive. Planning for cash flow will enable you to make better decisions and the potential advantages justify the expense of preparation.
A new challenge facing businesses in 2013 will be what to do about health care. Health care costs have consistently increased annually and with the added requirements of The Affordable Care Act (“Obamacare”) will continue to rise. The costs that are going to be incurred by the federal government to educate the general public are going to be astronomical. The costs employers will incur are yet to be determined. Working with a knowledgeable health insurance broker will likely be the most effective means to navigate the coming changes.
The problems with the economy took many years to create and will likely take several years to resolve. As businesses we must focus on our own growth which will contribute to the economic recovery. Increasing sales, implementing our business plans and budgets, and improving our cash flows will favorably impact our continued operations. I expect continued, albeit, modest economic recovery and am cautiously optimistic about the year ahead.