Decision-Making Tips

The 13-Week Cash Flow Forecast

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One of the best tools to forecast cash requirements is the 13-week cash flow forecast. It can help a business owner predict what their cash balance will be 13 weeks in the future. It helps to answer whether there will be enough cash to cover payroll and bills for a particular week. If you’re having significant ups and downs in your cash balance, it’s the perfect tool to help gain clarity around your cash needs.

Thirteen weeks may sound like an odd length to select, but it’s the length of a calendar quarter. This is the length of a financial projection that is typically used when a business is in financial distress; however, it’s also useful when a company is going through some ups and downs or simply wants to get a better handle on its cash requirements.

The forecast computations start with entering cash receipts and cash disbursements into a spreadsheet. Start with actual spending and receipts for the first week, then use estimates for the remaining weeks. Include planned expenditures such as overhead, payroll, and loan payments. Add in inventory purchases. Project your receipts based on history or recent changes in your business.

Once you’ve completed your forecast, you can make changes and do what-if scenario planning. For example, if the forecast shows that you will run out of cash in week seven, you have some time to decide what you need to do to remedy the shortfall. Options might be:

  • Accelerate the collection of 30 percent of your receivables.
  • Dip into your line of credit to cover a portion the shortfall.
  • Furlough 10 percent of your workers.

Plug your selected scenario into the forecast to see how much that relieves your shortfall.

The benefits of creating a 13-week cash flow forecast are many. You can see what actions need to be taken and when to take them well ahead of time. You can also see how much of an action you need to take. For example, instead of furloughing 50 percent of your staff, you may only need to furlough 25 percent.  Or instead of borrowing $50,000, you might only need $20,000.

The cash flow forecast can also save time when developing your annual budget. Budgets are especially useful when business conditions are volatile or when business owners need all the clarity they can get.

Try your hand creating a 13-week cash flow forecast for your business, or reach out to us for help any time.

The Entrepreneur’s Guide to Starting a Business in 12 Easy Steps

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Have you been thinking about starting your own business? Being your own boss is the dream of many people, and every year, thousands of people take the courageous step of becoming an entrepreneur.

If you are thinking of starting a business or have already started a business, here is a detailed checklist of items to consider to get your new business off to a great start. 

1. Make a plan.

There are a lot of moving parts to a new business! You’ll want to get organized (or get some help becoming organized if this is not your skill) and think about how some key functions in your business will work.  Some of the topics and/or questions to consider when developing your plan include:

What will you sell? 

We’ve found there are really two types of entrepreneurs.  The first is someone who knows exactly what type of business they want to be in because they have a skill set or background in it. They have a good idea of what they want to offer the marketplace. 

The second type of entrepreneur is one who simply wants to be an entrepreneur. They may look for a franchise that already has some structure to it or a business to purchase where the owner is retiring or simply wants to sell. They don’t really care what products or services they sell, they just want a successful business to run. 

Who will you go into business with?

Do you want to start a business by yourself, or do you want to find a partner? Many people start businesses as solos and then add partners or merge with other businesses to grow or expand. Everyone is different, but it’s something you need to work out before you get started. 

You’ll also want to consider how you will build your management team.  Initially, it can be yourself along with vendors you hire like accountants and attorneys that have skill sets that you don’t. As you grow, you’ll need people to head every function in your business, such as Sales, Marketing, Finance, Operations, Human Resources, IT, and Strategy.  

Who wants to buy what you are offering?

Is there an established market for what you intend to sell? Or do you have something that is one-of-a-kind? What competition do you have, and why will your offering stand out? 

To answer this question, you’ll need to perform a market analysis that will help you see if you have competition or if you are blazing a new trail. From there, you can plan your marketing and sales activities so that potential customers wll be able to find you.

Will you be able to generate a profit?

Almost anyone can start a business, but making a profit requires planning, preparation and skill. That’s why you’ll want to crunch your numbers to make sure your business is viable. You may need the help of an accountant or financial consultant to help you complete your plan.

What is your company?

Take a crack at describing your new company. This may be the start of your mission, vision, and values statements as well. 

Once you’ve answered these basic questions about your business, you can write it up and put it all together in a business plan. The last step is to write your Executive Summary, which will go at the beginning of the document. 

You don’t have to write a business plan unless you need one to find funding, but the entrepreneurs who do have an increased chance of surviving their first few years. 

2. Make a budget.

A budget clarifies the financial aspects of your business.  How much overhead will you have? How much startup cash do you need? How much revenue will you need in order to sustain your business on an ongoing basis? 

In addition to a budget, think about how you want to measure your financial results on an ongoing basis. What metrics do you want to know about on a monthly basis?  What reports would be useful for you to make good business decisions about opportunities?  These answers may not be clear when you first start, but they will become clearer over time, and a good accountant can guide you along the way.

3. Choose your organizational structure.

Should you choose a sole proprietorship to keep down initial costs, or should you incorporate your new business? There are many choices when it comes to entity selection for your business, and they vary state by state. The most common ones include sole proprietorship, partnership, limited liability company, S corporation, C corporation, and nonprofit. These choices have both tax and legal consequences, so this decision is best made with the advice of a professional attorney, CPA, or both.

If you incorporate, you’ll need to select the state you want to do business in and file incorporation papers with the proper state agency. But before you do that, you’ll need to name your baby!

4. Name your baby.

Your new business needs a name, and this can be an exciting step! It’s important too. The business name is the first item that displays your company culture and your business identity to the world.

Once you’ve decided on a name, you should register it with your local county. In some states, this is called an Assumed Name; in others it’s referred to as a Fictitious Name or DBA. You may also want to trademark your business name; this is done at the national level by industry.

5. Get an address and phone number.

Will your business need a physical location?  In this step, you’ll need to decide what address and phone number you’ll use for your new business. If you work at home, you can always get a mailbox at a place like Postal Annex, The UPS Store, or even the post office.  This won’t always work for a street address, but it’s something you can put on your marketing materials so your business looks more permanent.

Choosing the phone is important too. A cell phone alone is not really high enough quality for a business, but many people start out this way.

6. Get an IRS number.

If you remain a sole proprietor and don’t hire any employees, you can use your social security number as the number that the IRS needs for filing your taxes. In other cases, you’ll need a different tax ID number from the IRS.

You’ll need this number for several things, such as filing income tax return, filing payroll tax returns, opening bank accounts, and getting paid in some cases.

You can now complete a form online to get an IRS number.  This page from the IRS.gov website explains more: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

7. Open a bank account.

Once you have your Fictitious Name document or your incorporation papers, you can open a bank account for your business.  This is a big step too, and a good time to start involving an accountant. 

8. Find an accountant.

You may have already have enlisted an accountant to help you with your business plan and budget. But if you haven’t, now is a good time. You’ll need to make many decisions regarding the accounting functions in your business, such as:

  • Selecting the accounting system you need and getting it set up correctly to record and track your accounting transactions.
  • Getting help with federal and state tax requirements, including collecting state and local sales tax if applicable.
  • Getting help setting up accounting processes such as invoicing customers and collecting money.
  • Getting any financial questions answered that you may have.

9. Get insurance.

Protect yourself and your new business by making sure you have all of the right insurance policies set up.  Here are a few areas for you to consider covering with insurance policies:

  • General liability
  • Building and property coverage
  • Errors and omissions
  • Workers compensation
  • Umbrella
  • Auto insurance
  • Identity theft

10. Hire an attorney.

An attorney will come in handy when you first start your business as well as act as a resource when legal issues arise in the normal course of business. Initially, there are many legal documents to set up:

  • Contracts with customers
  • Terms of agreement for your website and any other client-facing applications you may provide your customer
  • Privacy policy
  • Employment offer letters and agreements

You may also want an attorney to review any vendor or partner contracts that you will be a party to.

11. Get paid.

How will you collect money from your customers?  You should have opened your bank account already (see #7 above), so you can get paid when someone writes you a check. But that’s typically not enough options to give your clients. They may want to pay you via credit cards, PayPal, or even bitcoin.

To take credit cards, you can start with PayPal for business, but eventually, you will need a merchant account, which enables you to accept credit cards from your clients and get paid via your bank. Applying for a merchant account is similar to applying for a loan.

If you use QuickBooks, you may be able to collect money through Intuit’s payment options. You might also be able to collect money via your point of sale system or your online shopping cart software. Let us know if we can help guide you in this area. 

12. Get specialty and local licenses.

Depending on the type of business you have, you may need additional licenses and permits to operate. For example, if you plan to serve alcohol, you need a liquor license. If you’re a hairdresser, you need a cosmetology license. 

You may also need local licenses to operate in your county or city.  Check with your local city or county offices to see if a business license is needed.  Even if you are operating out of your home, you may need this kind of license. 

Starting Your Dream

Hopefully, these twelve steps will make your entrepreneurial journey a little smoother so you can begin to accomplish your lifelong dreams of owning your own business.

If we can help you along the way, especially with your accounting, tax, and business advisory responsibilities, please reach out any time.

Download the PDF version of “The Entrepreneur’s Guide to Starting a Business in 12 Easy Steps” here.

Money and Marriage

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One of the biggest things that can cause fights in a marriage is money. No matter where you are in a relationship, it’s a good idea to discuss these major money topics so you’ll know where you stand. 

Show me the money:  Combine or keep separate or both

One of the best ways to avoid conflict is to put your money into three separate piles: yours, your spouse’s, and a joint set of accounts. In this arrangement, each of you has control over some money that is all your own. The household spending will then come out of the joint account, and you both will make contributions to it on a regular basis. 

As a couple, you’ll need to discuss who will pay for what as well as what your regular contribution will be to the joint account. This is no small discussion. The more thorough you are, the less conflict you’ll have over money.

One spouse or partner will normally handle the joint finances, and it’s typically the person with the most accounting knowledge. However, you both should have access to this account in case of emergency. 

Savings and future purchase goals

Do you have goals about upcoming large purchases?  These might include:

  • A home purchase or improvement
  • Children’s education
  • Health care needs
  • Saving for retirement
  • A car purchase
  • A second home purchase
  • A vacation
  • Another item such as a boat, furniture, technology gadgets, a plane, or something else
  • A nest egg or cushion

If so, calculate how much you need and make a plan to set aside the money you need in the time frame you agree on. 

Spending

Do you like to spend more than your spouse? Or is it the other way around? When money is flowing, there is usually no problem. When money is tight, that’s when the problems come in. 

When there are conflicts in the area of spending, the best course is to focus on priorities. If you can agree on your priorities and goals, it can often shift spending habits.  

Budget

You may want to set a budget to stick as close as possible to expected spending limits. Start by recording current spending in these areas, and then agree on the amounts you want to spend in the future. 

  • Rent or mortgage payment
  • Utilities, including electric, gas, water, garbage, phone, internet, cable
  • Food and supplies, including grocery, kitchen items, liquor, and eating out
  • Entertainment, including travel, vacations, local events, holiday decorations, Netflix subscriptions, tech gadgets, books, etc.
  • House maintenance including repairs, cleaning, lawn care, appliances, and decorating
  • Automobile, including gas, insurance, licenses, and maintenance
  • Clothing and accessories, including dry cleaning
  • Health care, including pharmacy, doctor’s visit, and HSA contributions
  • Personal care, such as haircuts, nail care, etc.
  • Tuition and/or education expenses
  • Contribution to retirement and savings accounts
  • Charitable contributions
  • Taxes, including federal, state, local, school, and property
  • Paying down credit card or student loan debt

Retirement

What does retirement look like to both of you? Having this conversation will be enlightening. Know that dreams and goals can change over time as retirement approaches.

You’ll want to have an idea about what you’d like to spend during your final years so that you can make plans to start accumulating that wealth now. The sooner you start, the more years you have to build up your retirement assets. 

Monitoring your progress

Keep an eye on your account balances to make sure everything is as it should be. Review bank and brokerage account statements and/or your budget once a month or at least once a quarter so there are no surprises or trends that sneak up on you.  

When you reach your goals, reward yourself. Managing money is hard work, and you deserve to pat yourself on the back when a goal is achieved. If there is anything we can do to help you make your financial dreams come true, please reach out any time.  

Business Planning Made Easy for 2019

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2019 is right around the corner, which makes today the perfect time to think about your business goals and where you want to be one year from now. As year-end wraps up, you’ll soon know your financial numbers for 2018. You’ll then be able to evaluate how you did and map out a new plan for 2019. 

If you’re like many small business owners, you may have started your business without a business plan. Most businesses don’t need a long 20-page document that will just gather dust on a shelf. But you might want to consider putting together a short, 1- to 2-page concise document that includes the basic components of a typical business plan: mission, vision, strategies, and objectives. 

A mission statement describes what the company is in business to do. And while you could simply state a mission similar to “Our mission is to sell our products and services,” you may want to think bigger than that in terms of how you want to be known or to impact more than your customers. 

A vision statement describes your company’s future position.  It’s what you aspire to be.  It could again be, “Our vision is to sell more products and services than any other business.” Or it could be more inspiring and uplifting. 

Your business strategies support how you’ll get from where you are to what is stated in your mission and vision statements. While there may be many ways to accomplish your mission and vision, strategies are the approaches you’ll take to get there. 

Goals are measurable destinations with a timeline that are created from your strategies. Objectives finally get down to the nitty gritty and state the tactics and action plans you need to execute to put all of this work into play. 

Each of these items can be written out on a few lines, taking up all together no more than a few pages. The benefits of having a concise business plan are many: if you think of an idea you want to do, you can check the plan to make sure your idea falls under your vision, mission, and strategies that you’ve laid out for the year.  If it doesn’t, then you’ll know that your idea would take you off track from your plan, and you know how easy that can happen these days with all of the distractions and options available to us.      

You may want to add additional sections to your plan depending on your strategies. If you plan to launch a new product or execute new marketing strategies, you might want to add a Market Summary section. If you seek new funding, you might want to have a section on funding options. With business planning, it makes sense to do what’s relevant, and nothing more or less. 

We wish you the very best in 2019, and if we can help you with the financial portion of your business planning, please reach out.