What every CPA should know

Cash flow solutions for Lawyers

Bankers Beware of the MCA Trap

Bankers covering the float learn about risk vs reward.

If you are fortunate enough to have customers that pay within 30 days and you can invoice on a weekly basis the minimum ratio of cash needed to weekly invoice is about 5 to 1.  If your customers take longer or if you can only bill monthly – the ratio goes up substantially.  And – and this is very important – this ratio does not leave you any capital to grow.

Virtually all of us start a business because we see an opportunity and a demand for something we can provide.

Let’s take what we learned in our first set of videos on profit and assume you know how to price your product and be assured of a net profit.

Corporate America has succeeded in making small businesses throughout the country finance its operations for the first 90 days.  I know this sounds like a conspiracy yarn – but think about it for a moment.

If you read Part 1 & 2 of this subject series, it is now obvious that to be assured of a profit – you must plan for it.  Let’s understand an important certainty.

PROFIT IS REALIZED ONLY AFTER ALL EXPENSES ARE PAID.

So, we have determined if you price a product at cost plus 25%, you will make a net profit of 4% to 8% if everything goes well.  Profit margins this thin are the principal reason most small businesses fail – it does not take much of a loss to sink your ship.

US Invoice Funding is in the business of helping our clients FIND profit.  The first step is to know where NOT to look.  One of those places lies within your “add on” profit percentage.  Many of my service business clients price their work this way – “I tally up what the job will cost and add 25%.”  Then they follow up with the refrain – “I don’t know why, but I never have enough to get ahead.”

You must have as a minimum all funds necessary to pay for your obligated labor - up to the moment. Labor is an issue of trust - your employees are working for you, trusting you will pay them. They do not have the capacity to be flexible regarding the timing of payment. Your payment is critical and must be made as agreed, therefore, you cannot speculate on the timely payment of customers to fulfill your obligation.

Your CPA and Lawyer will say yes. When they do, ask them to give you a legitimate alternative. Typically, the only alternative they will have for you (that is steeped in reality) will be a financial partner. We addressed that condition!

Bank profit margins are typically in the low single digits. Banks must also satisfy an extremely strict set of criteria imposed upon them by the FDIC and its bank examiners. Your banker would love to provide you the loan you need. However, if he/she does, in all probability, your business loan will be written up by the examiner. In other words, your bank will be penalized for making a loan to you.

First off here are the DON’T’S associated with choosing any broker:

DO NOT engage a Broker who:

Charges a fee up front (Appraisal Fees on real estate excepted),

Engages you exclusively for longer than 30 days,

Will not tell you the payment amount or term to expect.

IS IT TIME TO BUY A BUILDING FOR MY BUSINESS?

So, it is time to own your own building? Why not pay the rent to yourself? Are you going to Buy or Build?

Before we answer that question, let’s look at some general truths:

I’ve been asked several times – Have you ever been bankrupt? My answer is always the same – “Oh Hell Yes, I’ve gone bankrupt at least 6 times – but only filed once.”

We Small Business People are the economic backbone of this beloved USA: yet the prohibitive majority of small businesses fail. This says two things about us:

We are not afraid to jump.

We might want to plan our jump a little better.