Financing Cash Flow Peaks And Valleys

For many businesses, financing cash flow for their business can be like riding a continuous roller coaster.

Sales are up, then they do down. Margins are good, then they flatten out. Cash flow can swing back and forth like an EKG graph of a heart attack.

So how do you go about financing cash flow for these types of businesses?

First, you need to accurately know and manage your monthly fixed costs. Regardless of what happens during the year, you need to be on top of what amount of funds will be required to cover off the recurring and scheduled operating costs that will occur whether you make a sale or not. Doing this monthly for a full twelve month cycle provides a basis for cash flow decision making.

Second, from where you are at right now, determine the number of funds available in cash, owners outside capital that could be invested in the business, and other outside sources currently in place.

Third, project out your cash flow so that fixed costs, existing accounts payable and accounts receivable are realistically entered into the future weeks and months. If cash is always tight, make sure you do your cash flow on a weekly basis. There is too much variability over the course of a single month to project out only on a monthly basis.

Now you have a basis to assess financing your cash flow.

Financing cash flow is always going to be somewhat unique to each business due to industry, sector, business model, stage of business, business size, owner resources, and so on.

Each business must self-assess its sources of financing cash flow, including but not limited to owner investment, trade or payable financing, government remittances, receivable discounts for early payment, deposits on sale, third party financing (line of credit, term loan, factoring, purchase order financing, inventory financing, asset based lending, or whatever else is relevant to you).

Ok, so now you have a cash flow bearing and a thorough understanding of your options available for financing cash flow in your specific business model.

Now what?

Now you are in a position to entertain future sales opportunities that fit into your cash flow.

Three points to clarify before we go further.

First, financing is not strictly about getting a loan from someone when your cash flow needs more money. It’s a process of keeping your cash flow continuously positive at the lowest possible cost.

Second, you should only market and sell what you can cash flow. Marketers will measure the ROI of a marketing initiative. But if you can’t cash flow the business to complete the sale and collect the proceeds, there is no ROI to measure. If you have a business with fluctuating sales and margins, you can only enter into transactions that you can finance.

Third, marketing needs to focus on customers that you can sell to over and over again in order to maximize your marketing efforts and reduce the unpredictability of the annual sales cycle through regular repeat orders and sales.

Marketing works under the premise that if you are providing what the customer wants that the money side of the equation will take care of itself. In many businesses, this indeed proves to be true. But in a business with fluctuating sales and margins, financing cash flow has to be another criterion built into sales and marketing activities.

Over time, virtually any business has the potential to smooth out the peaks and valleys through a more robust marketing plan that better lines up with customer needs and the business’s financing limitations or parameters.

In addition to linking financing cash flow more closely to marketing and sales, the next most impactful action you can take is expanding your sources of financing.

Here are some potential strategies for expanding your sources for financing cash flow.

Strategy # 1: Develop strategic relationships with key suppliers that have the ability to extend greater financing in certain situations to take advantage of sales opportunities. This is accomplished with larger suppliers that 1) have the financial means to extend financing, 2) view you as a key customer and value your business, 3) have confidence in the business’s ability to forecast and manage cash flow.

Strategy # 2: Make sure where possible that your annual financial statements show a profit capable of servicing debt financing. Accountants may be good at saving you income tax dollars, but if they drive business profitability down to or close to zero through tax planning, they may also effectively destroying your ability to borrow money.

Strategy # 3: If possible, only transact with creditworthy customers. Credit-worthy customers allow both the business and potential lenders to finance receivables which can increase the amount of external financing available to you.

Strategy # 4: Develop a liquidation pathway for your tangible assets. Equipment and inventory are easier to finance if leaders clearly understand how to liquidate the assets in the event of default. In some cases, businesses can get resale option agreements on certain equipment or inventory from prospective buyers assignable to a lender to be used as recourse against a lending facility for financing cash flow.

Strategy # 5: Joint venture a sales opportunity with another business to share the risk of a large sales opportunity that may be too risky for you to take on yourself.

Summary

The primary long-term objective of a business with fluctuating cash flow and margins is to smooth out the peaks and valleys and create a scalable business with more of a predictable sales cycle.

This is best achieved with an approach that including the following steps.

Step #1. Micro Manage your fixed costs and cash flow and accurately project out the cash flow requirements of the business on a weekly basis.

Step #2. Take a detailed inventory of all the sources you have for financing cash flow.

Step #3. Incorporate your financing constraints into your marketing approach.

Step #4. If possible, only transact with creditworthy customers to reduce risk and increase financing options.

Step #5. Work towards expanding both your financing sources and available source limits for financing cash flow.

Business cycle stability and cash flow predictability is an evolutionary step for every business. The industries with longer sales cycles will tend to be the more difficult to tame due to a larger number of variables to manage.

A continuous focus on the process for improvement outlined will help create the desired results over time.

Accounts Receivable Financing – Don’t Worry, Be Happy

There is a reason why accounts receivable financing is a four-thousand-year-old financing technique: it works. Accounts receivable financing, factoring, and asset-based financing all mean the same thing as related to asset based lending- invoices are sold or pledged to a third party, usually a commercial finance company (sometimes a bank) to accelerate cash flow.

In simple terms, the process follows these steps. A business sells and delivers a product or service to another business. The customer receives an invoice. The business requests funding from the financing entity and a percentage of the invoice (usually 80% to 90%) is transferred to the business by the financing entity. The customer pays the invoice directly to the financing entity. The agreed upon fees are deducted and the remainder is related to the business by the financing entity.

How does the customer know to pay the financing entity instead of the business they are receiving goods or services from? The legal term is called “notification”. The financing entity informs the customer in writing of the financing agreement and the customer must agree in writing to this arrangement. In general, if the customer refuses to agree in writing to pay the lender instead of the business providing the goods or services, the financing entity will decline to advance funds.

Why? The main security for the financing entity to be repaid is the creditworthiness of the customer paying the invoice. Before funds are advanced to the business there is a second step called “verification”. The finance entity verifies with the customer that the goods have been received or the services were performed satisfactorily. There being no dispute, it is reasonable for the financing entity to assume that the invoice will be paid; therefore funds are advanced. This is a general view of how the accounts receivable financing process works.

Non-notification accounts receivable financing is a type of confidential factoring where the customers are not notified of the business’ financing arrangement with the financing entity. One typical situation involves a business that sells inexpensive items to thousands of customers; the cost of notification and verification is excessive compared to the risk of nonpayment by an individual customer. It simply may not make economic sense for the financing entity to have several employees contacting hundreds of customers for one financing customer’s transactions on a daily basis.

Non-notification factoring may require additional collateral requirements such as real estate; superior credit of the borrowing business may also be required with personal guarantees from the owners. It is more difficult to obtain non-notification factoring than the normal accounts receivable financing with notification and verification provisions.

Some businesses worry that if their customers learn that a commercial financing entity is factoring their receivables it may hurt their relationship with their customer; perhaps they may lose the customer’s business. What is this worry, why does it exist and is it justified?

The MSN Encarta Dictionary defines the word worry as:

“Worry

verb (past and past participle wororied, present participle wororyoing, 3rd person present singular worories)Definition:
1. transitive and intransitive verb be or make anxious: to feel anxious about something unpleasant that may have happened or may happen, or make somebody do this

2. transitive verb annoy somebody: to annoy somebody by making insistent demands or complaints

3. transitive verb try to bite animal: to try to wound or kill an animal by biting it

a dog suspected of worrying sheep

4. transitive verb

Same as worry at

5. intransitive verb proceed despite problems: to proceed persistently despite problems or obstacles

6. transitive verb touch something repeatedly: to touch, move, or interfere with something repeatedly

Stop worrying that button or it’ll come off.

noun (plural worories)Definition:
1. anxiousness: a troubled unsettled feeling

2. cause of anxiety: something that causes anxiety or concern

3. period of anxiety: a period spent feeling anxious or concerned…”

The opposite is:

“not to worry used to tell somebody that something is not important and need not be a cause of concern (informal)

Not to worry. We’ll do better next time.

no worries U.K. Australia New Zealand used to say that something is no trouble or is not worth mentioning (informal)”.

Query: if a business is financing their invoices with accounts receivable financing, is this an indication of financial strength or weakness? Query: from the point of view of the customer, if you are buying goods or services from a business that is factoring their receivables, should you be concerned? Query: is there one answer to these questions that fits all situations?

The answer is it’s a paradox. A paradox is a statement, proposition, or situation that seems to be absurd or contradictory, but in fact is or may be true.

Accounts receivable financing is both a sign of weakness with regard to cash flow and a sign of strength with respect to cash flow. It is a weakness because, prior to financing, funds are not available to provide cash flow to pay for materials, salaries, etc. and it is an indication of strength because, subsequent to funding cash is available to facilitate a business’ needs for cash to grow. It is a paradox. When properly structured as a financing tool for growth at a reasonable cost, it is a beneficial solution to cash flow shortages.
If your entire business depended on one supplier, and you were notified that your supplier was factoring their receivables, you might have a justifiable concern. If your only supplier went out of business, your business could be severely compromised. But this is also true whether or not the supplier is utilizing accounts receivable financing. It’s a paradox. This involves matters of perception, ego, and character of the personalities in charge of the business and the supplier.

Every day, every month thousands of customers accept millions of dollars of goods and services in contracts that involve notification, verification and the factoring of receivables. For most customers, “notification” of accounts receivable financing is a non-issue: it is merely a change of the name or addresses of the payee on a check. This is a job for a person in the accounts payable department to make a minor clerical change. It is a mainstream business practice.

6 Smart Online Shopping Apps To Save You Big Bucks

With a multitude of shopping apps available today, competition has surely increased amongst companies but have the price of the products really reduced? Well, partly. In this post, we will look at some of the best shopping apps that will help you get a good deal and save money in the process:

1. Paribus:
Paribus is a one of kind app that really came as a boon for people doing online shopping. All you need to is link your Amazon account with the app. Paribus then uses the information on your Amazon account like your purchase history and the future product price of the product you are looking to purchase. It will then send you an email whenever it finds a cash back offer. Not just Amazon, but you can link Paribus with more than 30 online retailers.

2. Shopsavvy:
Who says shopping hacks are hard to come by? You can definitely save money on your purchases with the Shopsavvy app. What this app does is use your phone’s camera to scan barcodes of different products. Once this is done, the app gives you a notification within a few seconds telling you how much exactly the products cost online or your nearby competing store. Supposedly the best deal is a mile away, then the app will direct you straight to that store. The app also provides shopping hacks to its patrons in the form of rebates and coupon codes.

3. Ebates:
Ebates is a favorite cashbackapp in many American homes. Well, simply because it promises you cashback from over 2,000 online stores including Target, Amazon and Walmart. Ebates provides continuous notifications whenever there is a price drop on your favorite product or there is cashback in question. Upon signing up with the app, you are also entitled to receive a $10 bonus on any purchases beyond $25. Looking for more such articles on saving cash? Then make sure to visit eShopping Journal.

4. CamelCamelCamel:
Yes, the name does sound like a stark error on a kids part at typing different animal names but rest assured, CamelCamelCamel is one of the good cash saving apps out there. Unlike a plethora of apps out there, this one doesn’t ask to link itself with your Amazon account or any account for that matter. The app only tracks the current Amazon prices and sends you drop alerts for the products that you have put on your watchlist. You will be alerted via email whenever the price of a product goes below the threshold it has created.

5. Honeyapp:
Next time you are out purchasing something, be sure to install the Honeyapp, that can help you great discounts on your purchases. The app automatically checks the price from other Amazon vendors for the products on your radar. If it finds a favorable deal for you, it will list that out with an orange honey button telling you how much can you save on your purchase.

6. Pricegrabber:
Another app helping mankind and providing money saving tips in the process. Pricegrabber helps list out a whole range of prices for the items you want to purchase on different websites. You can also check the bar code and check the costs online for your products. Unlike other apps, this app also takes into account the final price of a product along with shipping and taxes to help you get the best deals possible.

So there we have the 6 best shopping apps to help you save money on your purchases. Make sure to try them all out.

Why america needs Finance That Works for enterprise

Crumpled 1 dollar note.

The data proves that Wall Street definitely would not do sufficient for most important street

In an opinion piece nowadays in the Wall Street magazine, Harvard business faculty dean Nitin Nohria took problem with the center premise of my new ebook, Makers and Takers: The Rise of Finance and the fall of yank business: that as finance has almost quadrupled in size as a percentage of the U.S. economy over the past several many years, financial increase has slowed. Nohria argues that “Wall road stays a fundamentally fee-developing corporation.” To a huge degree, the information definitely doesn’t return him up.

Since the monetary zone started out to ascend in the Nineteen Eighties, the variety of financial crises (the largest destroyer of prosperity after wars and natural screw ups) have elevated, and overall fashion increase has slowed. As I explained in my latest Time cover tale, deep educational studies indicate that the growth in size and power of the economic zone in the United States has coincided with a decline in much metrics of commercial enterprise health, from studies and development spending to the range of recent start-united states being created.

 

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But what’s maximum thrilling to me approximately Dean Nohria’s argument is that he appears to be pronouncing that Wall Avenue is ideal because it lends cash to real groups, unlike the economic system of the India of his children. Just the opposite is authentic. Research have shown that best about 15% of the money sloshing around American financial establishments finally ends up in commercial enterprise funding–the rest is invested in present property like shares, bonds and homes, frequently creating the form of market bubbles that we’ve visible explode so dramatically within the closing decade. (For more research on this subject matter, see this seminal have a look at by using Schularick, Taylor and Jorda as well as Adair Turner’s ebook between Debt and the Satan.)

If we still had a device that operated inside the honest manner that Dean Nohria describes, it might truly be a boon for the American financial system. Regrettably, we don’t. Way to a fundamental commercial enterprise version shift from lending to trading, our economic gadget today enriches in particular itself, creating most effective for % of all jobs but taking 25% of company earnings.

As for his point approximately how its wrong to criticize MBA college students for heading to Wall road rather than enterprise, it’s absolutely authentic that you couldn’t blame them. Given the tens, or maybe masses of hundreds of dollars of debt that students nowadays graduate with, lots of them are compelled to just go in which the large dollars are. And as I illustrated above, that’s nonetheless Wall avenue greater than another enterprise.

What’s interesting in that many academics, consisting of numerous at Harvard, have criticized the curriculum that teaches financial engineering over the real kind. (See this captivating e-book on the topic by way of Harvard professor Rakesh Khurana.) Many CEOs themselves feel that today’s MBA college students are taught to consider the stability sheet earlier than something else, which include employees, clients or their very own long run corporate prosperity. As Aetna CEO Mark Bertolini stated to me, “commercial enterprise faculties are nonetheless teaching that you have to run your corporation the way human beings did many years in the past: marshal your capital and deal with hard work like an expendable cost. But the international has completely modified. We’re awash in capital, however there’s a scarcity of professional exertions out there. Business colleges are nevertheless using the identical old teaching models, in a world that’s so complicated, it couldn’t be modeled.”

What’s extra, the hassle of financialization isn’t restrained to the U.S. The IMF lately posted a paper noting that many rising marketplace countries are beginning to suffer from the tell-story signs and symptoms of an excessive amount of finance. Nations like India and China may be the next theaters for financialization.

Permit me be clear, while bankers themselves take lots of flack (some unfair, a few not) for all of this, the shift that I’m describing in my e-book is simply approximately forty years of small policy adjustments which have created the incorrect incentives for both financiers and CEOs. Washington is the remaining arbiter of what takes place on Wall road and that’s why it’s critical that the following President be aware of the truth that finance has end up a headwind to business, as opposed to a helpmeet (I provide several viable answers within the last bankruptcy of my e-book).

What we want isn’t a monetary machine that’s larger. What we want is a financial gadget whose primary feature is to guide real principal road business. Regrettably inside the US, and in a growing quantity of other countries, that’s never what we have.

Straus Orders Texas residence to observe faculty Finance

Citing the latest Texas ideal courtroom choice that upheld the kingdom’s public school investment machine even as deeming it “undeniably imperfect,” nation residence Speaker Joe Straus on Thursday ordered representatives to look at the school finance device and suggest reforms earlier than the 2017 legislative consultation.

“We can improve educational fine at the same time as additionally making our faculty finance gadget extra green,” Straus stated in an information launch. “Ignoring a number of the problems in our present day gadget will only lead them to worse. Faculty finance reform by no means comes quickly or easily, that is why these paintings wish to hold quicker in place of later.”

Straus requested that the House Public training and Appropriations committees study the effect of a soon-expiring provision that has allotted cash to high school districts to help offset mandated belongings tax cuts. He also requested the panels to examine “using local property taxes to fund public schooling and its effects on educational satisfactory and on Texas taxpayers.”

“As assets values have elevated, greater faculty districts have come to be a challenge to recapture, meaning that some of their nearby property tax dollars are despatched back to the state and distributed to high school districts with much fewer belongings’ wealth,” in keeping with the information launch. “For instance, the Houston unbiased school District is now facing the prospect of sending a recapture price of $175 million to the state in 2017. Considering the fact that 2006, the variety of faculty districts paying recapture has extended from 142 to 238.”

It’s essential that we maintain local tax greenbacks in neighborhood districts as lots as viable, whilst nonetheless making sure that everyone College students have access to satisfactory public schools,” Straus stated.

Straus is the first statewide leader to name for action following the country preferred court docket’s unanimous selection almost 3 weeks ago that upheld the country’s public faculty funding gadget as constitutional, whilst additionally urging country lawmakers to implement “transformational, pinnacle-to-backside reforms that amount to extra than Band-useful resource on top of Band-aid.”

 

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He already has ordered the house to study the cost of training Index, one component of the college finance system, in conjunction with the debt load and facility wishes of rapid-developing faculty districts.

“Mixed with those research, the newly issued charges will permit the residence to take an intensive examine faculty finance when the Legislature convenes in January 2017,” in step with the news release.

Straus’ pass drew reward from as a minimum one Democratic lawmaker and faculty and innovative corporations that involved lawmakers might no longer deal with school finance absent a judicial mandate.

“We are hoping that Speaker Straus’ movement on this trouble prompts legislators to are seeking for out and take into account forward-wondering solutions to foster a public education machine worth of our children, not a device that meets the bare minimum,” said Texas Association of College forums government Director Grover Campbell said in a statement.

“I’m grateful that the house could be the use of precious time throughout the intervening time to decide and speak potential college finance pointers,” kingdom Rep. Donna Howard, D-Austin, a member of the House appropriations committee, stated in an assertion. “I am geared up to join my fellow committee individuals and flow past partisanship, look beyond our nearby districts, and discover a college finance solution which goes for all Texas kids.”

The left-leaning Center for Public Policy Priorities expressed gratitude at the same time as suggesting additional studies.

“Reading the level of funding required to meet present day instructional standards would be one important manner that legislators, guided by data, should assist fulfill our promise to the following generation,” govt Director Ann Beeson said in an announcement.