Cash is the fuel that makes a business run. It is needed to pay salaries including your own, fund marketing programs to acquire and retain new customers, invest in equipment and facilities, pay rent, supplies and many more day-to-day activities. Most financial experts recommend three to six months of operating expenses, but using this for every business in every situation is misleading.
To determine how much cash you need, you must look at the following key areas.
How Much Cash Have You Been Using?
If you’re an established business owner, look at your monthly cash flow report (or go to the next paragraph if you’re a start-up). This report will provide an historical and seasonal perspective. Note the cash received from sales and the cash spent. The net of these two is often referred to as the “net burn rate.” For example, if you have $50,000 in sales and $30,000 in expenses, then your net burn is +$20,000
Your “gross burn rate” only takes cash expenditures into account; in our example, that’s $30,000 and is the more conservative amount, since it does not assume any sales are made. Historical spending patterns are a good starting point in considering future spending plans. Continue reading →
Washington is soon to be the fifth state to offer paid family and medical leave benefits. All workers will no longer have to choose between caring for their loved ones and making ends meet. They can dedicate their time away from work to be the best caretaker they can be. In return employers have access to an inexpensive benefit, save on payroll costs while the worker is on leave, and reduced employee turnover costs.
Workers can begin taking leave in 2020, but next year employers will have some actions to take.
First, employers need to withhold premiums from paychecks starting with the first check in 2019. These premiums are split between employers and workers. Workers foot most of the bill, but employers with 50 or more employees have a portion to pay also. (Employers with fewer than 50 employees don’t have to pay premiums but are still responsible for collecting and remitting the workers share.) Premiums are paid to the Employment Security Department by employers quarterly, starting in 2019. Learn more about premiums on the Premiums page. Continue reading →
Owners want to sell their businesses for for a variety of reasons – some want to retire and others are ready to move on to something else. Most owners ask – “is now a good time to sell?” Not surprisingly, the answer is, “it depends”.
Here are three factors to consider when timing the sale of your business. Of course, it is best when all three are optimally aligned, but that is not always possible.
The State of the Owner
The owner is critical to the success and ultimate value of a business. Typically, once the owner is beyond his or her prime, the business value will begin to falter.
It is best to sell when the owner is engaged, still excited about the business and perhaps wiling to stay on after the sale. Likewise, the more youthful and healthy the owner the less they will appear eager to sell.
A dollar is a dollar. That’s true. And, all revenue is equal. Right? Well no, not in an investor’s or potential buyer’s eye. So what makes some revenue good and other revenue not quite as good?
Recurring revenue is highly desirable because is it known and predictable. The best example of this is an auto-renewal fee or service charge periodically charged directly to a customer’s credit card. Once the initial sale is complete there are no more costs to acquire a customer. The revenue stream is much like an annuity. Continue to provide the goods or services as promised and the revenue keeps coming in.
Great examples of this are insurance premiums and streaming fees. Once customers have decided to purchase the product – and assuming they remain content, they are happy to have their credit card billed automatically.
In contrast, consulting and attorney fees are often one-time in nature. Revenue ceases when the project is complete and the engagement ends. Continue reading →
Small business owners heading into 2018 have a lot to be happy about — but they’ve also got some major concerns about the continued success of their businesses.
Capital One polled small business owners about their hopes and fears, and here’s what the latest Small Business Growth Index has to say about their responses.
All told, small business owners feel good about their finances. Nearly half (47 percent) say their businesses’ sales rose in the past six months—the highest percentage recorded by the survey since the second quarter of 2013. Some 37 percent say their financial position has improved from one year ago, too.
But it’s not all sunshine. While small business owners are happy with their finances, they’re also wondering how long the good times will last. In fact, two of the top three concerns cited by entrepreneurs in the survey are financial in nature. Continue reading →
It’s that time of year again. Most businesses are on a fiscal year which coincides with the calendar year. It is time to look back and reflect on 2017 as well as look forward and create a budget for 2018.
A budget is a roadmap. Based on where you have been, it can help guide you to the desired final destination for year-end.
If you stay on the current course – where will you end up? Alternatively, if you change the route – where will you be at the end of the year? It is up to you to decide which path is the most profitable and most likely to be achieved.