Category: Finance & Capital

Article Contributed by Ankit Gupta

We learn from our own mistakes, and sometimes from the others’. But in the case of a small business, you seldom get another chance to commit mistakes as 9 out of 10 startups fail due to reasons only a few bother to unravel. As per the ‘Startup Failure Post-Mortems’ by CB Insights, the polled CEOs revealed a number of reasons responsible for their business’s doom, where financial mismanagement was on the top of the list. The question that arises now is- “What financial mistakes small businesses are committing frequently?” Let’s dig deep into the insights given by the experts and talk out what are those 6 deadly financial mistakes that small businesses often commit:

Mistake #1: Having a weak business plan

Many Indian startups had to shut down their operations during the year 2015 for having a weak business plan that couldn’t serve its purpose well. Due to weak planning, a number of small businesses ran out of funds, and witnessed liquidation sooner; therefore, having a strong and workable business plan is a precondition.  Also, you must go ahead on your plan with a calculation that enables you secure an amount higher or at least equal to the funds you have raised from the market.

Mistake #2 : Undermining the web

“As per the non-adjusted estimates released by the U.S. Department of Commerce, the ecommerce sales of U.S. contributed over $341.7 billion during the year 2015.”

The mammoth figures clearly indicate how internet has taken the commerce by storm! However, a majority of small businesses defy this scenario, thus flame out to tap the lucrative benefits of the web. Every small business today needs a separate strategy for the web, and having a website that leads the customers down the sales funnel should be the foremost step in the strategy making process.

Mistake #3 : Not stashing cash for the odd

Not only small businesses, even medium businesses often bask in their achievement of securing high profit margins in their good times. But the time soon tests and those who do not sufficiently stash for the odd times remain highly vulnerable to liquidations. It is even more challenging for a small business to arrange the funds for a rough patch that may suddenly appear on its glory path. Thus, you must regularly save a part of your surplus income to meet your operating expenditure, for the times when your revenues start plummeting.

Mistake #4 : Poor expense management

Generally the small businesses keep a strict vigil to the cash inflows, but often fail to know where their cash is flowing out. This creates an imbalance with the cash flow management and business operations get adversely affected. So keeping strong tabs on the various expenditures would help you assess which processes need to be bailed out for the effective management of the cash as well as other assets.

Mistake #5 : Trusting others prematurely

“Trust takes years to build, seconds to break, and forever to repair”. Well said!

Whether it’s about a business or a relationship, one may end up with regrets while trusting the others prematurely. In a small business, where generally a little sum of money is bagged out of each deal, you’re likely to wanton ample money within seconds just because you may trust a business associate sooner than you should. So rethink, examine facts, and take time to trust someone who is knocking your shutters with the dream offer.

Mistake #6 : Wrong Revenue/Expense Anticipation

Small businesses usually face the problem of miscalculating the revenue as well as expenditure, and ultimately earn lesser and spend higher than they have anticipated. This wrong anticipation proves as a deterrent to the business growth. In such situation, you should prepare a quarterly budget to meet your organization’s financial needs aptly. And once you’re in practice, then you can gradually shift to the annual budgeting for a better revenue / expense management.

If you have ever made the above mistakes and still running the show, then you’re lucky enough. Believe me! Most of the small businesses were never able to recover the losses accounted to the above mistakes, and eventually they had to shut down. So, if your business is in its budding phase and the above mistakes are alien to you, then better take timely and appropriate actions so that you can write own success story.

About the Author

Ankit Gupta owns and manages ExportersIndia.com, One of the largest searchable buyers and sellers business marketplace in India. Owing to his passion for writing, Ankit keeps sharing his valuable insights with marketers of SMEs and start-ups, to keep them upaded with the latest news and trends.You can Follow Ankit on Google+, Twitter or LinkedIn to get more updates related to business.

Article Contributed by Dan Razak

As the world has turned into one gigantic global market, suddenly business owners have found themselves facing the whole world as competition. While the opportunities for success are numerous, and technological advances bring many benefits, it is not always an easy task to stay afloat. The most essential step for every business owner is to keep their company’s finances under strict control. If things are not going according to plan, what are some strategies that can help you get out of your financial rut? Here are some suggestions.

Take Time to Educate Yourself

You might not be particularly interested in finance, we get it. Some people even joke self-deprecatingly about their financial illiteracy. But if you aspire to run a business, there is just no way around it – you have to familiarize yourself with the ins and outs of finance. That doesn’t necessarily mean you need a degree from Harvard Business School, but you need to be comfortable with the terminology and able to understand and plan the minutiae of your company’s financial state and dealings.

Consult an Expert

While it is crucial that you keep close track of the situation, it is also very important to recognize when that is just not enough. Sometimes it’s time to consult an expert, someone with a deeper knowledge and vast experience. Following your instincts is great, but it’s wise to get an outsider’s perspective. A consultant can prevent unnecessary risks and advise you when and how to invest. To protect yourself from legal issues, it is also wise to invest in some premium forensic accounting.

Curb Your Spending Habits

While you might be entering the business arena with grandiose ideas, reality can be harsh and requires caution. Do not spend exorbitant sums of money on equipment, materials, lunches and cars you cannot afford, thinking you will earn it all back in no time. Invest in necessities, and try to be reasonable. Of course, no one is saying that you should save every penny. Take a good look at your needs and means. Try to make a realistic prediction of your future earnings based on current data. Then, using all of these facts, try to hit the sweet spot of optimal spending that will enhance your business instead of running it into the ground.

Think Long-term

Yes, just thinking about the present and staying profitable is hard work. However, the savviest businessmen are always looking at future opportunities, and steering the ship in that direction. The best and safest way to outline the future direction of your company is financial modeling. What does that mean exactly? Financial modeling is the practice of analyzing a business and coming up with predictions for future scenarios such as investments, acquisitions and mergers.

Nurture Your Company’s Reputation

In the business world, reputation is everything. Taking a serious hit to your reputation can even shut your business down. Running a company is not a game. There are rules that need to be followed, and word of mouth can cause your profits to soar or plummet. Always try to provide premium services or products at affordable prices. Do not go back on your word – negotiate carefully and thoughtfully and do not promise goods you will not be able to deliver. Cultivate a good working relationship with your employees, and motivate them to work hard and be loyal. Regard excellent customer support as your imperative.

Keeping your company’s finances in order will make it easier to do business. If you have detailed knowledge of your financial situation, this will help you spot any potential problems early on. And if it’s all smooth sailing, you will be able to grab all the perfect chances for expansion and investments.

Dan Radak is a marketing professional with ten years of experience. He is a coauthor on several websites and regular contributor to BizzMark Blog. Currently, he is working with a number of companies in the field of digital marketing, closely collaborating with a couple of e-commerce companies.

Making more profit is NOT the same as generating more revenue.

They are two completely different areas, and something that I see very little discussion on.

Sure,  I see LOTS of talk about revenues, i.e. six-figure businesses, multi-six-figure businesses, seven-figure businesses, but you never seem to get to the real story behind these headlines – how much profits are they really making? How much of the $100k does the business owner actually get to keep once expenses are paid — that’s the profit!

A six- or even seven-figure business sounds great, but it’s not so great if the profits aren’t there, i.e. you’re only making a $10k profit from a $100k business.

Profits are basically what’s left over (pre-tax or gross) after a business’ expenses have been deducted from its revenues – and this is one area of business that you need to keep a close eye on. So, taking two different scenarios, let’s look at some simple math in determining the profits of a six-figure business and a smaller five-figure business:

Business A – revenue = $125k p.a. with business expenses at $85k. Gross profit (before tax) = $40k or 32% of revenues.

Business B – revenue = $50k p.a. with business expenses at $14k p.a. Gross profit (before tax) = $36k or 72% of revenues.

Which business would you prefer to be the owner of? Obviously Business B because even though the revenues are lower, the profits are much higher, so Business owner B has a handle on their business expenses and is generating a very healthy profit in their business. And this means that when they scale-up their business, they’ll actually be generating a much higher profit.

In order to know if your business is going to make a profit in the current year you need to carefully watch your revenues (income) and expenses. One of the ways I do this (in fact it plays a major role in my business) is to produce a monthly Cash Flow Projection report that gives me the big picture for the year.

Put simply, a Cash Flow Projection shows whether your anticipated income will be able to cover your expected (projected) expenses and this report is very beneficial to you in your business. It is an annual report and, if set up correctly, will show you how cash will flow through your business throughout the current financial year.

You’ll need to keep a close eye on three main areas of your business expenses in order to ensure healthy profits:

1. Essential Business Services – these would be the things such as your shopping cart provider, your merchant account etc. In fact any service that is essential for the running of your business. Without this service your business could not operate. If you purchase any other business services determine how they are adding to your bottom line – is it worth continuing with them?

2. Advertising/Marketing Streams – where do you currently advertise your business and how much is it costing you? Is the return on investment worth it? To track this you need to know exactly where your clients and customers are coming from. One way to do this is to use ad trackers so that you know exactly how effective each advert is; how many leads it’s converting (people who sign up to your list); and how many sales it’s generating. Then you can make an informed decision about whether to carry on with this advertising stream, withdraw from it, or even increase your investment in this advertising stream.

3. Business Development – in order to grow your business you need to grow yourself and this means investing in your learning. Carefully look at all the products and programs you’ve purchased and analyze what the results were for you. How did your investment in this product or program directly grow your business? Did you learn something new that you were able to pass along to your clients in your teachings? Where are your skillset gaps? Do you need to work with a mentor or coach to grow your business again this year?

So, in summary, if you want to ensure a healthy profit in your business you’ll need to track your expenses against your revenues; implement an annual Cash Flow Projection report and update it monthly; and keep a close eye on your business expenses.

Unless you are an accountant, the last thing on your mind is probably bookkeeping.  However, whether you like bookkeeping or not, it is important to the health of your business.  This is especially true if you are looking for a business loan, as you will need to ensure that the following 5 items are balanced before you can receive a capital raise.  So if you are thinking about how to get a working capital loan, then you need to read this article.

1.  Taxes Payable

We must pay our fair share, but the tax laws exist for the benefit of small business owners.  I realize some of you are doing a double take after reading the previous sentence, but it is true.  The tax code helps small business owners to offset the investments they have made in their business in the form of tax credits.

While filing taxes is cumbersome, a good accountant will be able to guide you through the process.  If taxes aren’t done correctly, then you are leaving money on the table and this gets me to the flip side of the tax equation, which is failing to properly account for sales tax.

Many small business owners see this as free money, but don’t fall into this trap.  You are collecting sales tax on behalf of the government and they are expecting to get paid.  Furthermore, tax liability could sink your chances to raise the capital you are looking for.

2.  Payroll

Your employees want to get paid on time and investors want to make sure that your books properly account for payroll.  This includes salary, taxes, and benefits.  Failure to balance your payroll accounts may not only undermine your chances of getting the funding you seek, but it could lead to issues with your employees and a bad reputation as an employer.  Don’t let this happen to you, get a payroll system in place and use it.  Doing so will give you more transparency and control of this important line item.

3.  Accounts Receivable

Up to this point, we have talked about two important liability accounts, but now I want to focus on one of the most important items on the asset side of your business’ balance sheet – Accounts Receivable.

In the simplest terms, your Accounts Receivable is the money your customers owe you for the goods or services they bought from your company.  One key to raising capital is to not only make sure that this account balances, but to make sure that account aging and overdue payments are not an issue.

Most lenders or investors will want to know the percentage of receivables which fall in the 30, 60, and 90-day periods.  This is called account aging and the longer the period, the higher the risk.  Not only will you need alternative sources of working capital, but the risk of nonpayment goes up. In fact, managing Accounts Receivable is such a problem that President Obama launched an initiative in 2014 to ensure small businesses were paid on time.

4.  Shareholder Loans

Shareholder loans are a big red flag to potential investors and lenders.  Either they will see it as a balance sheet manipulation or it is a sign that the business is losing a tremendous amount of money and the business owners are drowning while trying to keep it afloat.

Even the IRS is looking at these loans, and tax courts have found that repayment of shareholder loans could be subject to employment taxes.  While shareholder loans serve legitimate purposes, it is best to work with your accountant to make sure you are navigating the myriad of issues created by carrying shareholder loans on your books.

5.  Financial Ratios

The outcome of key financial ratios is directly tied to the financial health of your business.  Some of the most common ratios used to analyze a small business include current ratio, gross profit ratio, net profit margin, accounts receivable turnover, and if you are seeking a loan – debt-service coverage ratio.

While the current ratio looks at total current assets (mainly cash and receivables) to total current liabilities (accounts payable, taxes, short-term debt).  The debt-service coverage ratio looks at the amount of free cash available to service debt (principal, interest, and fees) over a given period.  In terms of a loan or a line of credit, this ratio is one of the key performance indicators for a lender as it will help to determine how much a lender will give you.

As you can see, having your books in order will keep you from getting into trouble with the tax man.  In addition, it will ensure you have a good reputation with employees and will help lenders and investors to feel confident in your business.

Binary options may not have the best reputation around, but even an average trader can make a decent living trading from home. However, in order for this cool business idea to work, you need to know how to trade binary options successfully. There is no foolproof way of doing this, but employing some sort of strategy can sure go a long way. This is a business, just like any other, and if you treat it as such, you can be a success story yourself.

Binary Options 101

The thing about these options that has made them so popular is that you don’t actually have to own a financial asset like a stock or commodity to make money on them. Instead of spending money on overpriced financial assets, and making a tiny fraction of your investment, why not profit on those same assets, without any liabilities whatsoever?
You need to predict the direction of a price movement of a stock, commodity, index or a currency pair, and place a binary option on that outcome. You do not own any of the underlying financial instruments and are therefore not liable for anything. You invest finite sums of money and your investment is all you could possibly lose. Basically, you’d be making a living off financial instruments you probably could not afford to own in real life. And when you see how much you can earn on them without any liability, you probably wouldn’t want to, anyway. Let’s see how it’s done.

#1 Use analysis – technical, fundamental, or both

Most traders use either fundamental or technical analysis – or preferably both – to predict future price action. Those who rely on fundamental analysis are looking at the big picture. Instead of the stock of a large company, like Apple, they look at the company itself, its value, business plans – the overall situation. If they focus on currencies, like the USD/JPY pair, they look at the US and Japanese economies for clues.

Technical analysis involves analyzing the instrument itself and looking for patterns in price movement. Basically, it involves analyzing charts to predict how the price will act in the future. Normally, this would make little sense, but since all the traders on all the markets are doing this and trading accordingly, if most of them conduct the same analysis on the same numbers, they’ll reach the same conclusion. And once they start trading, the price automatically goes in the same direction.
If the analysis says the price is going to fall, everybody will start selling and it ends up falling anyway; or if it says the price is about to hike, everybody starts buying and the price goes up. With these options, things are even simpler, because your losses are capped and you are trying to predict what these traders might do, so using the same tools as them can go a long way in achieving this. The most common technical analysis tools are the Bollinger Bands and Moving Average.

#2 Use trading algorithms and signals

Instead of analyzing all that data by yourself, you can always rely on other people doing the heavy lifting. Apart from analysts and their predictions, you can also get a good piece of software that would crunch the numbers for you and tell you where the price for a certain instrument will go. Otherwise, there are trading signals that are set to recognize potential trading opportunities and get your attention so you don’t have to sit all day in front of a computer in order to get some good deals. You can and should only trade when it suits you.

#3 Copy someone else’s trades

This is perhaps the easiest way, as many brokers simply allow a feature where you can simply copy the moves from a trader of your choosing. They have a list of professional traders, their win-to-lose ratio, the number of people following them etc. Find the one with the best stats, set the investment amount and check in from time to time to see how things are doing. However, the downside is that sometimes professionals get it wrong, too. When they lose, so will you – but if you don’t know how to trade binary options successfully, you’ll win a lot more this way and from the very start, too.

Final Word

These three approaches to binary options trading may not be the only ones, but are by far the most widely used and most effective. Finding and formulating your own trading strategy is also an option, but this is up to you. In any case, most brokers offer a free demo account so if binary options aren’t your thing, you don’t have to lose any money trying to find out. So what are you waiting for?