Lasitha Silva’s Web’log

Archive for January 2009

spacer1businesswelcome_4

Your level of working capital is intimately related to the flow of cash into and out of your business. Simply stated, you need enough working capital to setup the business, pay operating costs, and continue to operate until payment arrives 30, 60 or maybe even 90 days later.

But if you’ve used a lot of that working capital to pay for fixed assets, you may come up against a crash crunch that prevents you from paying suppliers, buying materials and even paying yourself a salary. It’s a good idea then, to maintain a level of working capital that allows you to make it through those crunch times and continue to operate the business.

Short-term financing such as a line of credit (LOC) can be used to make emergency purchases or to bridge the gap between month’s-end payables and receivables. An LOC can be negotiated with your financial institution, and this should be done before any need actually arises. It’s usually easier to negotiate an LOC when you don’t really need one. A good time to go to your financial institution is immediately after the end of a good year or quarter. Bring your financial statements.

In growth situations where you have to suddenly increase inventory that will be sold on credit, you may need to increase your working capital. Shareholders and other investors can sometimes provide this cash injection and BDC can also provide long-term financing for working capital.

Large asset purchases such as equipment and real estate should be financed long-term which allows you to spread the payments over the average life of the assets. Yes, you’ll be paying interest but, you’ll still have a big portion of your capital on-hand for business operations.

The federal and provincial governments provide loan-guarantee services for the purchase of operating equipment and fixed assets, making it much easier for small businesses to obtain loans from financial institutions. Under programs such as the Canada Small Business Financing Program, the government agrees to pay up to 85% of the value of the loan, back to the financial institution if you the borrower default on that loan.

And it’s always a good idea to make a cash flow budget. Your bookkeeper, accountant, accounting software and even spreadsheets downloadable from the Internet can help you anticipate inflows and outflows of money over a period of time. Budgeting allows you to see when a cash crunch is likely to occur.

Manage the business risks

There are many risks involved in running a business, and serious challenges should be expected at some time in the future. You need to consider a number of scenarios such as “What if that big order suddenly comes in?”, “What if that big order is cancelled?” or “What if that important client goes under owing me money?” This kind of risk analysis can become part of your cash-flow budgeting process. For instance, if you’re using a spreadsheet to enter cash inflows, simply reflect that situation by adding or deleting. The repercussions in the weeks and months to come should be immediately visible, so that you can consider what you would do if that occurred.

You can reduce the risk of cash-crunch due to this type of situation, by planning ahead and having a more diversified client base. If you’re not dependent on one large order or client, your livelihood doesn’t hinge on the health of someone else’s business. Finding new clients will increase revenue, improve your cash flow situation and make you less susceptible to marketplace adversity.

Another risk associated with running a business, especially among startups, is mixups between business and personal bank accounts and credit cards. Since initial financing often comes from the owner’s personal savings it’s easy to see how that can happen. This situation has a simple remedy which consists of opening a separate bank account and credit card for the business. Your business account should be where you deposit customer cheques, draw your salary, and pay your employees and suppliers. Similarly, get a separate credit card for the business, make business-related purchases on that card, and pay for that card using your company cheques. Some credit cards provide management reports that detail the types of purchases made over the month and over the past year, and this type of information can then be used in your cash flow budget for next year.

Collect quickly

To guard against late payments, bill as early as possible and make those invoices as clear and as detailed as possible. It may also be worth changing other billing practices such as invoice frequency: instead of waiting until the end of the month, generate an invoice as soon as the goods or services are delivered. Make sure those invoices are addressed to the right person in the right department.

For those big orders, you may want to consider progressive invoicing while you manufacture the goods or deliver the service. For example you can ask for a deposit with the order and then a percentage of the payment at various agreed upon milestones.

Keep track of your receivables. It’s easy to lose track and then neglect to follow up on an overdue account. Experience shows that the longer you remain out of contact with a customer, the less likely you are to recover the full amount owed, so if you can’t take care of it yourself, hire someone to do it for you.

Monitor your costs and your inventory

Make sure you’re getting the best possible deal from your suppliers. You can do this by shopping around and getting quotes from other suppliers. They may not be able to give a better price, but may be able to offer better payment terms making it easier on your cash flow situation.

Analyze inventory turnover to determine which items are selling and which are duds that are soaking up your working capital. Try to keep inventory levels lean so that your working capital isn’t tied-up unproductively and unprofitably.

Finally, if you feel you need help managing inventory or making cash flow projections, BDC Consulting can help you implement working capital strategies that are just right for your business.

Source : http://www.bdc.ca

Advertisements

The United Nations issued a worldwide appeal Thursday for $613 million to help Palestinians recover from Israel’s military assault on the Gaza Strip.

But U.N. and Palestinian officials warned that the effort would fall short unless Israel and Egypt ended their blockade and allowed construction material, heavy equipment and parts to enter the enclave.

Israel and Egypt have kept Gaza’s borders tightly controlled or closed since Hamas, a militant Islamic group, seized power in the territory in June 2007. Both countries are resisting international pressure to ease the restrictions after Israel’s 22-day offensive aimed at halting rocket attacks into its territory. Nearly 1,300 Palestinians, mostly civilians, were killed in the offensive and thousands of homes and other buildings were destroyed, with damage estimated at $2 billion.

U.N. Secretary-General Ban Ki-moon announced the call for donations at the World Economic Forum in Davos, Switzerland. “Help is indeed needed urgently,” he said, to meet critical needs for food, clean water, shelter, medicine and restoration of basic services.

President Obama’s Middle East envoy, former Sen. George J. Mitchell, said during a visit to the West Bank on Thursday that ending the blockade would also help shore up a cease-fire that took effect early last week.

This article was extacted from  Los Angeles Times.  Its pretty good to hear the world has eyes on that cruelty. But who can get back the poor children and others out of death. Nor Ban Ki-moon nor Obama…

Re-build Gaza for tha sake of humanity.

I recently heard the news of Gaza on fire. 600+ dead and 3000+ injured. Most of them are innocent civilians from both parties. Its true Sri Lanka also is in war against terrorism, but in Gaza, most of the victims are civilians.

How cruel people be struggling this much killing each other for a stripe of land.

………………………………………………………………………………………………………….