Category: Forecasting

Prepare For An Economic Boom

5/3/2021

Should you help clients prepare for an economic boom or act yourself? Do you expect to see trade increase in a post-COVID-19 world? Will activity and consumer confidence rise enough that both restaurant and retail sales show recovery? If the 9.8% increase in March 2021 is any indication, think yes. It seems that employment, retail spending, and manufacturing are all exhibiting solid gains. Vaccinations offer light at the end of the tunnel. Meanwhile, there is great hope that the end of the pandemic is approaching. With this in mind, businesses need to prepare for a boom in trade in a post-COVID-19 world. Certainly, companies should take full advantage of any economic improvements. How can your company plan for a return to active trade in a post-pandemic world?

Prepare and Plan with your Accountant for a Boom in Trade

Although uncertainties do remain, the overall economic outlook is brighter. Most importantly, putting measures into place now can ease the transition from restrictions. After that, converting from government help to a self-supporting, thriving business once again will take active management. In other words, can you prepare your business for an increase in trade after the effects of the pandemic have eased?

Your accountant will understand your business and the industry in which you operate. In addition, accountants can help you plan for the short-term and long-term future. They will develop the cash flow and sales forecasts underpinning your decisions. Above all, wise plans allow you to proceed with confidence in a post-coronavirus world.

A professional accountant is a crucial partner for any business owner. They will save you time and money in the long run. In addition, they provide a reliable source of support that helps you build your business up again.

Harness the Power of Technology

Management accounting software allows you to keep an eye on cash flow, create comprehensive budgets and cash flow forecasts. After that, you can view the general state of your business at the touch of a button. Review your options at AccountingSoftwareWorld.

You can grant access to your software to your accountant. After that, you can benefit from their professional opinion and insight. Above all, you will make both day-to-day and long-term strategic decisions with more confidence as your trade volumes start to boom.

Access to Funding for an Economic Boom

Additional sales may require additional funding to meet the sudden increase in demand. Alternative finance can be of enormous value in this respect. It is typically more flexible and quicker to access than a business bank loan and can sustain your business over the long term.

If you are a credit-based business, invoice finance or factoring uses the value of your invoices to generate funding. You may also be able to hand over your credit control function to the financier. You can focus on steering your business forward.

Retail businesses that take card payments can also benefit from alternative funding called merchant cash advances. Cash advances provide funds based on the value of the card sales. Getting cash advances offers vital support to business growth.

Asset-based businesses can leverage the value of their hard assets to generate a cash lump sum and still use the asset as before. This cash input can fund the extra workforce or materials needed to meet additional post-COVID-19 demand.

Strong Supply Chains

Building resilience within your supply chain is crucial. To prepare for an economic boom, planning to deal with supply chain shortages during a boom in trade is wise. For instance, if you rely on a single supplier, consider how you would prevent a disruption in supply from damaging your business.

Along with your accountant, you should map out your supply chain to see where it may need reinforcing, identify any risks, and mitigate them as necessary. You could locate potential alternative sources of supply. Most importantly, you will not lose customers due to missing components or late deliveries.

Summary

Emerging from the pandemic as a stronger, more streamlined business requires careful planning and preparation. If you do not currently use professional accounting services, look for a new accountant who is reliable and specializes in your field. Check for credentials from the AICPA or CPA Canada. Understand the accountant’s qualifications, working practices, and specialties. Consider vendor directories if you need specific help with QuickBooks or Xero. If you are an accountant acting in an advisory role, make sure you assist current clients. Proactively market your planning and cash flow services to prospective businesses.

Attend CPE courses and conferences in person or online to learn more about planning, cash flow and budgeting.

Randy Johnston

Cash Flow is Vital

4/5/2021

It is a rare company owner that has no concerns about money. Above all, management of cash flow is vital. Starting a business means you are responsible for your company’s success. After that, you are the person who ensures your employees can afford to put food on the table. In addition, you must prepare for the unexpected.

With money being of such vital importance, you must control the finances of your business. Cash flow management is how you do this. We have highlighted three ways you can manage cash flow.

Security: it is about protecting your business in its early stages

Cash flow management is perhaps the most critical aspect of business finances. In other words, it is all about ensuring your incoming cash and outgoing expenses are balanced. Similarly, your goal is to make sure your company is not spending more money than the business is making.

Get this wrong, and your business will not survive, no matter how good its products or services are. Claiming business survivability is not scaremongering. As this article explains, poor cash flow management is why 82% of small businesses fail within their first five years.

In addition, there are some other reasons companies fail before their sixth birthday:

79%: not having enough money to start with
77%: poor pricing (covers products but can also relate to salaries)
73%: over-optimism when it comes to sales targets

As these numbers show, cash flow management is a matter of life or death for small businesses. The basic principle is making sure you have enough available cash to keep your company afloat. It would be best if you built a cash reserve. How much? Some experts recommend having three months of expenses. Others recommend six months. I would suggest speaking to your CPA or financial adviser to determine the correct amount for your business. The following two sections of the article explain how you can have cash in the long and short term.

Long-term: loans give you capital to invest in tangible assets

Nearly eight out of 10 startups fail because they do not have sufficient capital from the outset. There are many reasons for this, but there is no doubt a key reason is those founders do not want to start in debt. Similarly, they probably did not have cash sitting idle in their personal bank accounts.

This blog post states that 73% (just 9% lower than the number that fails within five years) of small businesses prefer to forgo growth than commit to borrowing. In addition, there is guidance like Profit First from Mike Michalowicz suggesting ways to manage your business while minimizing borrowing.

Let us make one thing clear: companies need to grow if they are going to survive. Growth is never more critical than at the early stages. Loans can help your business to grow because they free up capital to invest in tangible assets. Tangible assets mean getting an office if needed, purchasing office equipment, or securing vital machinery.

There are two primary types of business loans your company can get:

Government grants: the U.S. and Canadian governments have a range of finance programs for new businesses, with the interest rates often lower than private banks.
Bank loans: private financial institutions have a broad selection of loans available for startups, with the borrowing amount generally higher than state-run schemes.

Obtaining loans can be a sensible way of using cash flow management to grow your business at a vital stage in its existence, done sensibly. Therefore, review if a loan can take your company to the next level. After that, make a business case for getting a government grant or bank loan.

Short-term: business cards let you buy now and pay later

You have been on a cash flow journey in this article already. We highlighted that cash flow is the biggest reason companies do not last more than half a decade. After that, we showed a correlation between cash flow and the number of businesses that do not borrow.

Similarly, we now expand your cash flow tools further. It would help if you used sensible lending to advance your company while it finds its feet. In other words, we highlight how to use the short-term borrowing of business cards to manage your cash flow.

Business cards give your startup immediate access to cash to purchase necessary items. Business cards can cover an enormous range of things. For example, you might use one to buy fuel to drive to a networking conference, pay for the hotel while you are there, and cover dinner with a prospective client. Incurring expenses in front of revenue is a norm for many startups, especially we are trying to secure new (perhaps their first) clients to grow the company.

Three types of business cards for cash flow management

There are three main types of business cards:

Credit cards: this review highlights APR, annual fees, and introduces the key things you should look for when deciding which card to get.
Fuel cards: this guide explains that supermarket fuel cards can be a good way for small businesses to cover their travel expenses. Grocery reward cards often provide everyday discounts for fuel and provide discounts if your business requires grocery supplies. This article rates the best fuel cards for business, as does this one. One supplier, Wex, provides more information on fleet cards.
Trade cards: this page covers the benefits construction companies can get from using a trade card to pay for their expenses.

Using business cards can be a rational method of managing cash flow to cover the day-to-day costs of running a company. Tracking expenses may be more manageable when you employ a buy now and pay at a more convenient date approach. However, this only works if you treat charges and payments with respect and diligence. You must pay for things you need and use the future income that you know is guaranteed on a timely (monthly?) basis. Therefore, assess if a business card can help you manage your costs. Select the one(s) that best suit your needs. In conclusion, the management of cash flow is vital.

Cash flow provides vital security for the business

Security is the reason for using cash flow management, with business loans and business cards potentially a good way of achieving it.

We are not suggesting that you load your company up with debt. However, to get the cash you need, it can help to borrow sensibly, particularly when customer receipts trail the services delivered. Cash flow is vital at all times, good or bad. Instead of turning your nose up at loans or credit cards and seeing your business fail due to insufficient capital, think about how cash flow tools can provide room to focus on running the business rather than managing cash shortfalls.

Understand the latest in cash flow technologies in our CPD courses on accounting and customer support systems in small business accounting with add-ons or mid-market accounting, which includes cash flow systems.

Authors

Ward Blatch
Ward provides consulting and training services as the Managing Director of K2E Canada Inc. He joined K2E Canada in 2005 and is responsible for the Canadian operations of this international consulting group, which provides professional development technology education for accountants across Canada and the US. Ward lives in rural Nova Scotia and can be reached at ward@k2e.ca.

Tommy Stephens
Tommy is one of the shareholders in K2 Enterprises, affiliating with the Firm in 2003 and joining as a shareholder in 2017. At K2, Tommy focuses on creating and delivering content and is responsible for many of the Firm's management and marketing functions. Tommy resides in the metro Atlanta area. You may reach him at tommy@k2e.com.

Randy Johnson
Randy is a nationally recognized educator, consultant, and writer with over 40 years experience in Strategic Technology Planning, Accounting Software Selection, Paperless, Systems and Network Integration, Business Continuity and Disaster Recovery Planning, Business Development and Management, Process Engineering and outsourced managed services. Randy can be reached at randy@k2e.com

Bernie Smith
Bernie coaches businesses to develop meaningful KPIs and present their management information in the clearest possible way to support good decision making. As the owner of Made to Measure KPIs, he has worked with major organisations including HSBC, Airbus, UBS, Barclays, Credit Suisse, Lloyds and many more.

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