Yearly archives "2016"

An Introduction to Working Capital and Cash Flow

If you own and operate a small business, you know how important critical thinking skills, time, patience and dedication are. These aspects are essential for running a successful business, but you must additionally have proper knowledge and understanding of how other things work. For instance, it is imperative to know the difference between cash flow and working capital if you want good decisions to be made for your business when lenders and business partners prepare financial statements. However, many people utilize the two terms interchangeably, and that can lead to misunderstanding and negative decisions.

To make sure your business continues to run well, you must understand the details and aspects of each term so that you use them correctly. Firstly, you should understand what cash flow is and what a cash flow summary is used for. Take a certain amount of time, such as a month or week in your business into consideration. In that week or month, how much money can your business generate to cover your expenses? This is referred to as a cash flow summary, and cash flow is how much cash is coming in and moving out of your business. Typically, you will generate one of these summaries for a quarter or perhaps a year. It is important to note that this summary will not take your assets into account and it will now show how they can impact your business’s financial responsibility. In essence, the cash flow summary is for determining how much money can come from your business in a certain amount of time.

Working capital, on the other hand, is different and can show your other things. For instance, it involves liabilities and assets. While cash flow accounts for expenses, working capital has the ability to show you the comparison between your outstanding debts and your current assets. In order to better understand this difference, take this example into consideration. If you currently have a loan of 5,000 dollars and your customer base starts to decline for whatever reason, you will still have to make payments on that loan. How working capital helps is that it will show you which assets can be liquidated to resolve your debt. So, if you are experiencing a sudden decline or a tough time, you can use the capital report to your advantage to help you pay the debt. Now that you know the difference between these two business terms, you can ensure you are making good financial decisions.

How to Manage Small Business Finance Situations

Any business can get into a financial mess, but when you run a small business, it is easier to mix your personal finances with your business finances. You may borrow money from your personal account to pay for a business expense and forget to pay it back. You may use a company account to take your spouse to dinner and lose the receipt. All of these back and forth transactions can cost your company and yourself a lot of money if you’re not careful. The following are some ways that you can manage your small business finance situation.

The first thing you should look into is what type of payments you accept for products or services rendered. If you have invoices that get paid in 30, 60 or 90 day increments, you could find yourself turning to your personal account to make up the difference. Fortunately, you have some other small business finance options. Accounts receivable financing is just one of those. With this type of loan, you will get the money you need right up front. It’s like selling an asset to the financier, and you receive the financial benefits.

Something else you can do to manage the finances in your small business is to keep good records. Keep track of all your invoices and receipts for both incoming and outgoing purchases. This is good not only for you to project future business through real reports, but could save your bank account if you are ever audited by the IRS. Without proper documentation of your business finances, it could be hard to see if you are making money, losing money or just breaking even.

Growing your business can be difficult without the funds you need to do it. One smart way to manage your money as you try to achieve growth is by speaking with a financial expert about what types of loans will be beneficial. If you’ve got a short term project that will really boost business, but costs more than you can handle at the moment, ask about an unsecured business line of credit. If you want to move to a bigger building, but haven’t sold your initial property, look into a bridge loan. There are a lot of options that allow you to keep your personal finances at home, but still be able to see the growth you hope for.

Managing finances in any business can be a challenge, but by keeping your personal and business funds separate, it could be lots easier. Speak to a loan officer today to see what options you have to better manage your small business finance situations.