personal loan can be a vital part of a well executed financial plan. You can use one to consolidate other debts, or to pay for something that won't fit on your credit card - or that will be cheaper with it than at exorbitant credit card rates.
Of course, it makes sense to get the cheapest personal loan that you can find. Here are five steps to finding and getting a cheap personal loan for your needs.
1. Be strategic.
Maximise your chances of being accepted for a personal loan without bunging up your credit with excess credit applications. Before you start applying for loans, get hold of your credit report or your credit score. Knowing where you stand on the credit ladder will help you single out those personal loan products that are aimed at your segment of the loan market.
2. Shop around both online and off to find the best loans.
Online, you can take advantage of price comparison sites to check the details on many different personal loans at once. Use the comparison sites as a starting point to help you sort things out - then follow links back to the lending company's own web site to do further research. Offline, check with your local high street lenders to find out what terms and rates are being offered.
3. Check with a trusted lender.
If you already have done business with a lender, or are doing business with a bank or building society, check in with them to see what they can offer you. In many cases, people with dodgy credit will get better consideration from finance companies who know them already. This is step 3 and not step 1 for a reason, though. When you've checked other avenues first, you'll have a gauge to measure the terms you're offered to be sure that the loan is worth taking.
4. Take advantage of the lender's greed.
There are ways to make your application more attractive to a lender without falsifying any information. For instance, lenders make a great deal of money on payment protection insurance (PPI), so they tend to look more favorably at loans when the borrower requests it. It's far more advantageous for you, on the other hand, to provide your own standalone PPI. Take advantage of the situation by requesting a loan quote with PPI included. When you receive the paperwork to sign, return it unsigned with a request for a quote without the PPI included. Since they've already approved your loan, it will be difficult for them to justify denying your amended application. Do be sure to act quickly, however, or it could cost you.
5. Don't judge by APR.
The APR - annual percentage rate - is the figure that you're most likely to see banded around as a loan comparison tool. The truth is that it's easy for banks to manipulate the APR and make the loan seem less expensive than it really is. Instead, use the total amount repayable as a gauge if your biggest concern is how much the loan will cost you overall, and the monthly payment if you need to be wary of your monthly budget.
Thursday, January 31, 2008
Financial Management Resources on Better Management
Financial Management leverages information from numerous sources including accounting, regulatory, and marketing operations to enable managers to make better business decisions in strategic planning, budgeting and financial reporting. Managers and executives alike must understand how to leverage their business information into actionable financial intelligence their organization needs to stay competitive in today’s global market. Corporate governance and financial transparency requirements impose another level of fiduciary responsibility on executive management.Topics of special interest include corporate planning, mergers and acquisitions, international accounting standards, financial forecasting, financial modeling, Sarbanes-Oxley and regulatory compliance and reporting.BetterManagement provides an extensive library of Financial Management topics and resources to help you develop effective strategies and best practices for financial management. Live and archived webcasts, business management articles and editorials, business books, and many other industry-focused resources provide guidance and advice from Financial Management experts, as well as real-life examples from companies with effective and successful Financial Management practices and policies.
Bankruptcy - How To Recover And What To Expect
Bankruptcy is not the end of life. Yes, it does knock down your credit considerably. And, people don't seem very willing to lend you money after bankruptcy. However, bankruptcy also gives you a fresh start. You have a new opportunity to rebuild your life and your finances. Recovering from bankruptcy is not easy but it is possible if are willing to work toward it.
The first thing to do is to evaluate your situation objectively. If bankruptcy was the result of a temporary setback, such as a medical emergency, you do not need any drastic measures to recover. Just take steps to beef up your savings and investments so that if another emergency strikes, you are well-prepared.
In contrast, if the root cause of your bankruptcy was excessive spending, you would need to take tougher steps to recover from this financial blow. You might need to make drastic changes to your lifestyle-spend much less and save much more. If you used to dine out a lot, you may need to switch to home-cooked meals. If your wardrobe was earlier full of designer clothes, you may now need to settle for off-the-rack dresses. These steps may hurt initially but will ensure that your recovery to financial independence is speedier.
In addition to cutting expenditures, it is important to start saving and investing your money wisely. You can start by saving small amounts and then move on to bigger investments as your financial position gets better. Go for a mix of long-term investment options, such as retirement plans, and short-term investments that you can liquefy easily. While the long-term investments take care of your future needs, the short-term ones act as a safety net for you in case of any financial emergency.
About a year after you filed for bankruptcy, you should start thinking about rebuilding your credit score. The easiest way to do so is to apply for a credit card. You may want to do so sooner but it is wiser to wait out a year. This way, you can avoid unscrupulous lenders who charge astronomically high rates of interest because of the recent bankruptcy record.
Once you decide to go for a credit card, make sure you explore all options before settling on any credit card. These days, it is not difficult to get a credit card even if you have a bankruptcy record. If possible, opt for a secured credit card as you will get it a lower interest rate than an unsecured one. At www.bankrate.com, you can find a list of creditors who offer secured and unsecured credit cards after bankruptcy. Some examples of unsecured credit cards for those recovering from bankruptcy are Continental Finance Gold and Merchandise.
Once you get your credit card, use it cautiously. Learn from your past credit mistakes and make sure that you do not again fall into an overspending trap that led you to bankruptcy. In addition, make sure that you pay off your credit balance in full each month. After you have done this for some time, you can negotiate with the lender for a lower interest rate.
The above guidelines will help you recover from bankruptcy, slowly but steadily. In the meantime, keep your dreams alive and don't lose heart.
The first thing to do is to evaluate your situation objectively. If bankruptcy was the result of a temporary setback, such as a medical emergency, you do not need any drastic measures to recover. Just take steps to beef up your savings and investments so that if another emergency strikes, you are well-prepared.
In contrast, if the root cause of your bankruptcy was excessive spending, you would need to take tougher steps to recover from this financial blow. You might need to make drastic changes to your lifestyle-spend much less and save much more. If you used to dine out a lot, you may need to switch to home-cooked meals. If your wardrobe was earlier full of designer clothes, you may now need to settle for off-the-rack dresses. These steps may hurt initially but will ensure that your recovery to financial independence is speedier.
In addition to cutting expenditures, it is important to start saving and investing your money wisely. You can start by saving small amounts and then move on to bigger investments as your financial position gets better. Go for a mix of long-term investment options, such as retirement plans, and short-term investments that you can liquefy easily. While the long-term investments take care of your future needs, the short-term ones act as a safety net for you in case of any financial emergency.
About a year after you filed for bankruptcy, you should start thinking about rebuilding your credit score. The easiest way to do so is to apply for a credit card. You may want to do so sooner but it is wiser to wait out a year. This way, you can avoid unscrupulous lenders who charge astronomically high rates of interest because of the recent bankruptcy record.
Once you decide to go for a credit card, make sure you explore all options before settling on any credit card. These days, it is not difficult to get a credit card even if you have a bankruptcy record. If possible, opt for a secured credit card as you will get it a lower interest rate than an unsecured one. At www.bankrate.com, you can find a list of creditors who offer secured and unsecured credit cards after bankruptcy. Some examples of unsecured credit cards for those recovering from bankruptcy are Continental Finance Gold and Merchandise.
Once you get your credit card, use it cautiously. Learn from your past credit mistakes and make sure that you do not again fall into an overspending trap that led you to bankruptcy. In addition, make sure that you pay off your credit balance in full each month. After you have done this for some time, you can negotiate with the lender for a lower interest rate.
The above guidelines will help you recover from bankruptcy, slowly but steadily. In the meantime, keep your dreams alive and don't lose heart.
Transferring a Credit Card Balance
Are you staring at that attractive advertisement for switching credit card companies by transferring your balance from one card to another? While many of these offers are truly great deals, balance transfers and card-switching is not something to jump into, eager as you may be. You need to do your homework first: Do enough research and investigating in order to determine whether it in fact is worth it or a good idea to make the transfer.
First, find out if it is in fact worth it. Generally speaking, these attractive advertisements and super credit card deals advertise very low introductory rates if you transfer your current balance from an existing credit card onto this new one. You can stumble upon these offers anywhere—online, in the mail, on a flyer or via a telephone call from credit card company salespersons—and you need to determine how great these deals really are, or if you’ll just end up paying much more in fees and interest in the long run.
Read the fine print. Read everything. Read it through several times so that you make sure you understand what it is saying. It may appear to be a bunch of financial jargon that you might not think is very important, but the truth is, this information is valuable and critical to your decision in whether or not you make the big switch. Call the credit card company and ask any questions you might have. If the deal is solid and they want to make a sale, generally they should be able to help you out in any way.
What do you need to find out about the deal? Here is an example. Let’s say that the advertised introductory rate is 6% (a low rate) on credit card B if you transfer your balance from credit card A, where you currently rack up an APR of 18% (a standard rate). You come across another offer, showcasing credit card C with an introductory rate of 9%. At first glance you may think, “Well, let’s go with credit card B—it’s the obvious choice here.” However, after reading the fine print, you discover credit card B’s special rate only last six months, and afterward the APR is 20%, whereas credit card C’s higher rate lasts for a year and the interest rate after that is 18%, the same as yours on credit card A.
In other words, you have to factor in a lot of variables when making the decision to switch your balance from one credit card to another. Besides comparing the introductory rates being offered, the length of the offer and what the regular interest rate is, you’ll also need to take into account balance transfer fees, annual fees, late fees, and other miscellaneous fees, as well as whether the teaser rate applies to balance transfers only or also purchases, among other considerations.
However, many credit cards with these introductory rates offer great deals for people interested in switching credit cards and transferring their balance over and can be more than worth it. The important thing is to do your research, read the fine print and ask questions to determine which credit card and deal is the right one for you.
First, find out if it is in fact worth it. Generally speaking, these attractive advertisements and super credit card deals advertise very low introductory rates if you transfer your current balance from an existing credit card onto this new one. You can stumble upon these offers anywhere—online, in the mail, on a flyer or via a telephone call from credit card company salespersons—and you need to determine how great these deals really are, or if you’ll just end up paying much more in fees and interest in the long run.
Read the fine print. Read everything. Read it through several times so that you make sure you understand what it is saying. It may appear to be a bunch of financial jargon that you might not think is very important, but the truth is, this information is valuable and critical to your decision in whether or not you make the big switch. Call the credit card company and ask any questions you might have. If the deal is solid and they want to make a sale, generally they should be able to help you out in any way.
What do you need to find out about the deal? Here is an example. Let’s say that the advertised introductory rate is 6% (a low rate) on credit card B if you transfer your balance from credit card A, where you currently rack up an APR of 18% (a standard rate). You come across another offer, showcasing credit card C with an introductory rate of 9%. At first glance you may think, “Well, let’s go with credit card B—it’s the obvious choice here.” However, after reading the fine print, you discover credit card B’s special rate only last six months, and afterward the APR is 20%, whereas credit card C’s higher rate lasts for a year and the interest rate after that is 18%, the same as yours on credit card A.
In other words, you have to factor in a lot of variables when making the decision to switch your balance from one credit card to another. Besides comparing the introductory rates being offered, the length of the offer and what the regular interest rate is, you’ll also need to take into account balance transfer fees, annual fees, late fees, and other miscellaneous fees, as well as whether the teaser rate applies to balance transfers only or also purchases, among other considerations.
However, many credit cards with these introductory rates offer great deals for people interested in switching credit cards and transferring their balance over and can be more than worth it. The important thing is to do your research, read the fine print and ask questions to determine which credit card and deal is the right one for you.
Wednesday, January 30, 2008
Cash Flow Loans
Any business activity requires a sustainable source of fund. Often your business may fail to generate appropriate funds even when it is making profit. This problem generally arises when the major income of the business is tied with receivables that take much time in liquidation. Taking the account of urgency of the requirement of your business, you are helped with cash flow loans. Since, this financial assistance is granted after assessing the cash flow of a business, this is commonly known as cash flow loans. Cash flow of company is that amount of cash that is left with a company after taxes, depreciation, or any other obligation. The cash flow of a company determines the repayment capability. Thus, the more the cash flow of the company, the more amount of loan it will get.To obtain cash flow loans a company has to show a valid statement of total receivables and total payables. The surplus from receivables and payables shows a company’s financial strength, that’s why it is considered as the essential requirement while providing cash flow loan. Cash flow loans are available in two types i.e. secured and unsecured. The secured type requires collateral or security that is generally the business assets. This type of the loan provides you a somewhat lower rate of interest and longer repayment duration. Whereas, with the unsecured form, no collateral is required that keeps a somewhat higher interest rate and shorter repayment duration. Your good credit record can definitely yield a better deal for you. However, bad credit holders too have chance to avail this loan. Borrowers, having CCJs, arrears, defaults, IVAs, bankruptcy can even avail this loan but with somewhat higher rate of interest.To avail this loan you can contact both offline and online lenders. The online lenders accept online application that voids much hassle documentation and saves a lot of your time. A horde of these lenders are available in the market with differed rate of interest that can be compared for a better option.For all that, the cash flow loans help you when your business is on the verge of great loss. It is available to you only by assessing the cash flow of your business. So, a good business performance can help you availing the appropriate fund for your business. It helps you grabbing a potential opportunity that you may loose because of lacking on appropriate fund.
Financial freedom no matter how much money you make!
You do not need to be rich to achieve financial freedom. Financial freedom is simply living debt free and organizing your money so that when the bills are due, you have the money set aside to pay them.
Most people believe that a budget is for people who don't have much money, and it also tends to make people feel restricted in their spending. Nothing could be further from the truth!A budget is simply a spending plan. Most people like to spend money, so let's use the word "spending plan" and leave the word "budget" behind us.A properly used spending plan will provide a person or family (with even a modest income) a true sense of financial freedom.
What I am talking about is this sense of freedom that you get when the mortgage comes due and you have the money already set aside; when the kids have to go back to school shopping and the money is there waiting; when you go grocery shopping each week and you know exactly how much money you can afford to spend because the money is already set aside!When we took one of our cars in for inspection, we were told that it needed new tires. No problem! I had an automobile maintenance fund set aside and we had just enough money to cover not only the inspection, but a nice new set of high-quality tires, all because we implemented a spending plan with the help of some very powerful, yet easy to use software!
An effective spending plan can be created by simply looking at the money you have spent over the past year or so and getting an estimate as to how much money you spend in each area of your life. Then looking at your income and getting an idea of how much money you would need to put aside for each category for the coming year. If you have not been keeping track of where your money goes, simply start now by keeping a general record of where you spend your money.
Right about now you are probably thinking, "Is this guy nuts? Nobody uses cash anymore, and nobody keeps cash in envelopes!" This is where software comes into play. There are software programs available that will enable you to have "virtual" envelopes to keep track of your money, which is safely tucked away in your checking and savings accounts. I am not talking about a simple Excel spreadsheet or anything of that sort, I'm talking about extremely powerful software (much better than MS Money or Quicken) that can generate reports, track all of your expenses,pay your bills online in seconds, make tax time a breeze, automatically place the proper amount of money in each envelope, and get you on the highway to financial freedom.It is probably best start out with a relatively small number of categories. As you become familiar with your spending plan you can expand the number of categories. For example you may want your housing category to include all the monthly bills associated with your home, or you may want to have a separate category for mortgage payments, utilities, homeowners insurance, taxes, etc. You may want to add more categories such as taxes, birthday parties, medical bills, hobbies, allowances, unexpected expenses, etc..It may take a little bit of time to set up your spending plan, but once it is set up, it takes very little effort to keep it in place. You won't do it perfectly the first time, you will have to make adjustments as time goes on because unless you are extremely lucky, you'll find out you had too much money set aside in some categories and too little in others. You can always change your spending plan as your situation changes, your income changes, or your spending categories change.This may sound like a lot of work, but the concept is simple, and the software will guide you through step by step. Very soon, you will have total control of your money, and will know what true financial freedom feels like!
Most people believe that a budget is for people who don't have much money, and it also tends to make people feel restricted in their spending. Nothing could be further from the truth!A budget is simply a spending plan. Most people like to spend money, so let's use the word "spending plan" and leave the word "budget" behind us.A properly used spending plan will provide a person or family (with even a modest income) a true sense of financial freedom.
What I am talking about is this sense of freedom that you get when the mortgage comes due and you have the money already set aside; when the kids have to go back to school shopping and the money is there waiting; when you go grocery shopping each week and you know exactly how much money you can afford to spend because the money is already set aside!When we took one of our cars in for inspection, we were told that it needed new tires. No problem! I had an automobile maintenance fund set aside and we had just enough money to cover not only the inspection, but a nice new set of high-quality tires, all because we implemented a spending plan with the help of some very powerful, yet easy to use software!
An effective spending plan can be created by simply looking at the money you have spent over the past year or so and getting an estimate as to how much money you spend in each area of your life. Then looking at your income and getting an idea of how much money you would need to put aside for each category for the coming year. If you have not been keeping track of where your money goes, simply start now by keeping a general record of where you spend your money.
Right about now you are probably thinking, "Is this guy nuts? Nobody uses cash anymore, and nobody keeps cash in envelopes!" This is where software comes into play. There are software programs available that will enable you to have "virtual" envelopes to keep track of your money, which is safely tucked away in your checking and savings accounts. I am not talking about a simple Excel spreadsheet or anything of that sort, I'm talking about extremely powerful software (much better than MS Money or Quicken) that can generate reports, track all of your expenses,pay your bills online in seconds, make tax time a breeze, automatically place the proper amount of money in each envelope, and get you on the highway to financial freedom.It is probably best start out with a relatively small number of categories. As you become familiar with your spending plan you can expand the number of categories. For example you may want your housing category to include all the monthly bills associated with your home, or you may want to have a separate category for mortgage payments, utilities, homeowners insurance, taxes, etc. You may want to add more categories such as taxes, birthday parties, medical bills, hobbies, allowances, unexpected expenses, etc..It may take a little bit of time to set up your spending plan, but once it is set up, it takes very little effort to keep it in place. You won't do it perfectly the first time, you will have to make adjustments as time goes on because unless you are extremely lucky, you'll find out you had too much money set aside in some categories and too little in others. You can always change your spending plan as your situation changes, your income changes, or your spending categories change.This may sound like a lot of work, but the concept is simple, and the software will guide you through step by step. Very soon, you will have total control of your money, and will know what true financial freedom feels like!
Monday, January 28, 2008
Cash Flow Statement
The Cash Flow Statement shows how the company is paying for its operations and future growth, by detailing the "flow" of cash between the company and the outside world; positive numbers represent cash flowing in, negative numbers represent cash flowing out.
Notes
The three sections of the cash flow statement - Operations, Financing, and Investing - correspond to the three solid green arrows back in the diagram.
The first two sections show the two ways the company can get cash. Operations means "making" money by selling goods and services; Financing means "raising" money by issuing stocks and bonds. The third section shows how the company is spending cash, Investing in its future growth. If you're interested in the stock of this company, you'd like to see that they can pay for the "investing" figure out of the "operations" figure, without having to turn to "financing". (Financing causes problems: issuing new stocks will lower the value of each individual share; issuing bonds commits them to making interest payments which will punish future earnings).
This company has a "healthy" cash flow: cash provided by operations is more than sufficient to cover cash used for investing. It's actually even better than that, because the "financing" number is negative: they're buying back stock shares in order to keep the value high.
By the way, note that the Operations section looks strange because the signs are all backwards; for example, depreciation is an expense, but you're adding it. What you're doing here is starting with "net" earnings from the income statement and then adjusting it by removing all components that don't entail a flow of actual money. Depreciation, which is a "paper" expense that's hidden within several of the expense categories on the income statement, has already been taken out of earnings; by adding it back in, you're removing its effect.
Notes
The three sections of the cash flow statement - Operations, Financing, and Investing - correspond to the three solid green arrows back in the diagram.
The first two sections show the two ways the company can get cash. Operations means "making" money by selling goods and services; Financing means "raising" money by issuing stocks and bonds. The third section shows how the company is spending cash, Investing in its future growth. If you're interested in the stock of this company, you'd like to see that they can pay for the "investing" figure out of the "operations" figure, without having to turn to "financing". (Financing causes problems: issuing new stocks will lower the value of each individual share; issuing bonds commits them to making interest payments which will punish future earnings).
This company has a "healthy" cash flow: cash provided by operations is more than sufficient to cover cash used for investing. It's actually even better than that, because the "financing" number is negative: they're buying back stock shares in order to keep the value high.
By the way, note that the Operations section looks strange because the signs are all backwards; for example, depreciation is an expense, but you're adding it. What you're doing here is starting with "net" earnings from the income statement and then adjusting it by removing all components that don't entail a flow of actual money. Depreciation, which is a "paper" expense that's hidden within several of the expense categories on the income statement, has already been taken out of earnings; by adding it back in, you're removing its effect.
The Essentials Of Cash Flow
If a company reports earnings of $1 billion, does this mean it has this amount of cash in the bank? Not necessarily. Financial statements are based on accrual accounting, which takes into account non-cash items. It does this in an effort to best reflect the financial health of a company. However, accrual accounting may create accounting noise, which sometimes needs to be tuned out so that it's clear how much actual cash a company is generating. The statement of cash flow provides this information, and here we look at what cash flow is and how to read the cash flow statement.
What Is Cash Flow?
Business is all about trade, the exchange of value between two or more parties, and cash is the asset needed for participation in the economic system. What Is Money?. For this reason - while some industries are more cash intensive than others - no business can survive in the long run without generating positive cash flow per share for its shareholders. To have a positive cash flow, the company's long-term cash inflows need to exceed its long-term cash outflows.
What Is Cash Flow?
Business is all about trade, the exchange of value between two or more parties, and cash is the asset needed for participation in the economic system. What Is Money?. For this reason - while some industries are more cash intensive than others - no business can survive in the long run without generating positive cash flow per share for its shareholders. To have a positive cash flow, the company's long-term cash inflows need to exceed its long-term cash outflows.
Is Accounts Receivable Draining Your
Making a sale is very important. But collecting the money for the sale is even more important. It does not do any good to sell a product if you don’t collect your money.
In fact, you can ruin a business real fast if you neglect the all-important step of making sure you are collecting the money for what you sell.
I had the President of a national association of small business owners tell me a story about one of their members that really highlights this point.
One of their members started a service business catering to large health care institutions.
She would provide a trained staff of people to perform services that the institution would otherwise have to hire employees to perform. She provided a turnkey service that would help improve the service levels while at the same time save the institution money.
After she got her first contract, she began the process of recruiting, interviewing, hiring, creating an extensive training program, training the new hires, etc.
This took about three months to complete.
After her team was in place and trained, they began providing the service. She sent her invoice to the institution after the first month of services had been provided. After a couple months went by she got a really big surprise.
It turns out this institution held invoices from suppliers for at least 120 days before they paid them. In fact, it was somewhat of an industry practice. She was now almost seven months into her new business and she had not even collected the first dollar of revenue.
She had been spending money all this time not realizing there would be this huge delay in actually collecting her money.
Unfortunately, she ran out of cash.
When she started the business she thought she would be able to get everything going faster and she thought she would be able to do it a little cheaper.
But the really big surprise came when she realized the hard way that creating a sale and collecting the cash doesn’t always happen at the same time.
A Sale is Not a Sale Until the Cash Is Collected
I worked with another business owner who had recently sold about $18,000 of merchandise to two different commercial accounts. He had basically hit a home run by winning these two new commercial accounts.
He was feeling really good about the sales and about finally breaking into this untapped market.
And his income statement looked really good in the month he made the sales. In fact, it showed he had the best month in the store’s history.
What he had not realized until now was that these sales were actually hurting his cash flow.
Not only had he never collected the $18,000, he had already paid for the inventory he sold them.
To make matters worse, this uncollected sale was happening at a time of the year when he could least afford to be without the cash. The sale looked good in the income statement, but not so good in his cash flow.
The Key is to Manage Accounts Receivable Closely
He learned a very important lesson about selling to commercial accounts.
He learned that selling something and collecting the money are two different things. He created new standards for how these sales would be handled in the future.
Each invoice for a commercial sale would have a specific due date on it.
He began talking to his commercial customers about his terms very early in the selling process. Having this worked into the selling process early on helped him make sure his invoice would get processed timely once it was sent to the company.
He also decided to begin a proactive process for calling to check the status of an invoice within seven days of sending it.
He would have his bookkeeper make frequent calls to check status of any outstanding invoices so he could aggressively work outstanding invoices before they could become a problem.
He also planned to make sure he understood the full cash flow impact of accepting large orders.
He now recognized that it was very important to know that you have sufficient cash flow to handle the up-front cash commitment required to take on a big new order from a customer.
Make Sure You Get Paid What is Owed You
If you invoice your customers, you have no choice but to make sure you actually get paid for every dollar you invoice.
You must make this is one of your highest priorities so that you get paid every dollar that is due to you.
This is a critical aspect of your business that you can’t afford to ignore.
In fact, you can ruin a business real fast if you neglect the all-important step of making sure you are collecting the money for what you sell.
I had the President of a national association of small business owners tell me a story about one of their members that really highlights this point.
One of their members started a service business catering to large health care institutions.
She would provide a trained staff of people to perform services that the institution would otherwise have to hire employees to perform. She provided a turnkey service that would help improve the service levels while at the same time save the institution money.
After she got her first contract, she began the process of recruiting, interviewing, hiring, creating an extensive training program, training the new hires, etc.
This took about three months to complete.
After her team was in place and trained, they began providing the service. She sent her invoice to the institution after the first month of services had been provided. After a couple months went by she got a really big surprise.
It turns out this institution held invoices from suppliers for at least 120 days before they paid them. In fact, it was somewhat of an industry practice. She was now almost seven months into her new business and she had not even collected the first dollar of revenue.
She had been spending money all this time not realizing there would be this huge delay in actually collecting her money.
Unfortunately, she ran out of cash.
When she started the business she thought she would be able to get everything going faster and she thought she would be able to do it a little cheaper.
But the really big surprise came when she realized the hard way that creating a sale and collecting the cash doesn’t always happen at the same time.
A Sale is Not a Sale Until the Cash Is Collected
I worked with another business owner who had recently sold about $18,000 of merchandise to two different commercial accounts. He had basically hit a home run by winning these two new commercial accounts.
He was feeling really good about the sales and about finally breaking into this untapped market.
And his income statement looked really good in the month he made the sales. In fact, it showed he had the best month in the store’s history.
What he had not realized until now was that these sales were actually hurting his cash flow.
Not only had he never collected the $18,000, he had already paid for the inventory he sold them.
To make matters worse, this uncollected sale was happening at a time of the year when he could least afford to be without the cash. The sale looked good in the income statement, but not so good in his cash flow.
The Key is to Manage Accounts Receivable Closely
He learned a very important lesson about selling to commercial accounts.
He learned that selling something and collecting the money are two different things. He created new standards for how these sales would be handled in the future.
Each invoice for a commercial sale would have a specific due date on it.
He began talking to his commercial customers about his terms very early in the selling process. Having this worked into the selling process early on helped him make sure his invoice would get processed timely once it was sent to the company.
He also decided to begin a proactive process for calling to check the status of an invoice within seven days of sending it.
He would have his bookkeeper make frequent calls to check status of any outstanding invoices so he could aggressively work outstanding invoices before they could become a problem.
He also planned to make sure he understood the full cash flow impact of accepting large orders.
He now recognized that it was very important to know that you have sufficient cash flow to handle the up-front cash commitment required to take on a big new order from a customer.
Make Sure You Get Paid What is Owed You
If you invoice your customers, you have no choice but to make sure you actually get paid for every dollar you invoice.
You must make this is one of your highest priorities so that you get paid every dollar that is due to you.
This is a critical aspect of your business that you can’t afford to ignore.
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