Net Income is what is left after operating expenses are subtracted from gross income and is shown on an income statement. Cash Flow basically takes the net income and subtracts uses and adds sources to that net income. Uses include increasing assets or reducing liabilities, while additions to cash flow come from decreasing assets or increasing liabilities.
An abbreviated quick test of cash flow takes net income and adds back interest, depreciation, income taxes and amortization (EBIDTA) and then subtracts required loan principal and interest payments. This helps determine required cash flow activity for debt service coverage, but does not tell the entire story. For your business inventory may grow, equipment be purchased or other balance sheet changes made. Share your numbers and projections with your advisors so you and they understand the difference in your net income from your cash flow.
The cash flow of your business is an indicator of whether it’s in a healthy position or not. Managing cash flow isn’t always an easy task, but there are best practices and online solutions that can make the process easier.
Focus on Cash Management. While profits can determine success or failure of a company, cash flow management is just as important. Online banking solutions and account sweep services put you in control of moving funds between accounts so there’s just enough cash when and where you need it.
Collect Receivables. Receivables are assets that are owed to you. You may need to make special arrangements to collect any receivables you’re owed. Consider online solutions to help deposit funds more quickly.
More Customers. If you notice your business doesn’t have enough cash on hand, find new customers. Expand your marketing. Hold sales on items or services but be careful as sales may not always translate into more cash.
First of all, continue to listen to your trusted advisors, and possibly increase your team of advisors. The biblical proverb states “Without counsel, plans go wrong, but with many advisers they succeed.” It applied then and always will. Don’t forget to listen to your customers also, as their input will help you work with your advisors.
The second thing to remember is to keep up your books. Small negative trends or changes can become big problems if not recognized and managed early. If your expertise is not in bookkeeping, hire someone or contract with a good bookkeeping firm.
The third thing is to compare what you are doing to your original or latest strategic plan. Managing change will always be necessary, but you want your actions based on well thought out strategies, and not just on short term actions. Then, stay focused.
How do I finance my company’s growth?
The financing of buildings, equipment, inventory and other tangible assets is typically easiest as the asset can be sold if needed to recover a portion of the cost of the asset (collateral). Identifying the life of the asset and related financing is also easier. Calculating other related costs such as maintenance, repairs, real estate taxes, insurance, installation, training and other categories is necessary.
Financing of additional staff, leasehold improvements, software and other similar expenses typically takes more cash invested, other collateral, an SBA guaranty, longer history of profitability or other more unique debt structures. Sometimes a line of credit also can be used for this to help make sure debt is not growing faster than inventory, receivables or other indicators of success.
Overall, do a projection on the financial effects of your growth expense and visit with your business advisers.
Is your business prepared to handle a workers’ compensation claim?
Workers’ Compensation is an insurance benefit that assists in protecting your business’ most valuable asset, your employees.
It allows you to provide coverage to your employees in the form of wages, medical costs, permanent or partial disability and death benefits that may arise from a valid compensable injury while on the job. In most states, laws regulate Workers’ Compensation so it’s prudent to protect your business and mitigate potential litigation, too.
- Find an insurance agent specializing in Workers’ Compensation to help craft a comprehensive program appropriate for your business.
- Ask what the controllable and minimum experience modification factor is, a potential factor in determining premium cost.
- Review what each carrier offers to enhance your business safety and training program.
By implementing a Workers’ Compensation program, you can help reduce unforeseen burdens on your business and employees.