Alexandra Levit's Water Cooler Wisdom

How Entrepreneurs Can Use Supply Chain Finance

Supply chain finance, also known as reverse factoring, links the seller, the buyer and the financing party to improve business cash flow on all sides.

How Supply Chain Financing Works

In leveraging supply chain finance, suppliers sell outstanding receivables to financial institutions to accelerate payment of receivables and extend payment flexibility to customers.

Once the supplier sends an invoice to the buyer, the buyer confirms to the financial institution that the invoice is approved and the supplier receives payment immediately. When the invoice is due, the buyer pays the financial institution back.

Benefits for Buyers Using Supply Chain Financing

There are many benefits for buyers using supply chain financing, including increased liquidity, less contentious relationships with suppliers, decreased liabilities and consolidated finances.

Increased Liquidity

Buyers initiate reverse factoring so their suppliers receive more streamlined payments at lower interest rates. The process aids liquidity for buyers because they receive lengthier and generous payment terms.

Buyers also don't need to contend with early payment requests from suppliers. In the reverse factoring process, suppliers are already paid at previously agreed-upon, and typically faster, terms.

Less Contentious Relationships 

Supply chain finance helps the supply chain process run more smoothly and provides advantages for everyone involved.

In dealing directly with a supply chain funder (i.e. the factor), buyers can usually avoid payment disagreements with suppliers. When buyer/seller relationships don't deteriorate based on late payments or failure to pay, they can grow stronger and build trust, and are thus more likely to expand.

Decreased Liabilities

A business liability is money owed from past transactions that will require additional funds to resolve.

Buyers want to reduce liabilities so they can procure lower interest rates from lenders and maintain overall financial health. Using reverse factoring, the factor is on top of invoices and payments so buyers can focus on other things.

For the rest of the article, head over to the AMEX Business website.

Learning Resources to Help You Keep Up With Your Growing Business

Effective strategies for managing a growing business change all the time—the onus is on the owner to develop a mindset of continuous education. It's in your best interest to identify learning resources in a few key areas that are critical for growing your business.

Let's focus on debt consolidation, business loan attainment, supply chain  management and sales and marketing tracking because they all affect your ability to generate positive cash flow and ensure that your operations solidly support your growth objectives.

Debt Consolidation

When growing pains hit your business, you could unexpectedly find yourself in a mountain of debt.

Rather than letting the situation get out of control, you might consider debt consolidation, which involves taking out a new loan to pay off the debt and associated interest across your accounts. Debt consolidation loans are typically installment-based, meaning you pay them off monthly over a set time period.

Provided you procure a loan with a lower interest rate than that of your other balances, debt consolidation may make sense for you. Learning resources that teach the ins and outs of debt consolidation include a local credit union, CreditKarma, Debt.org and NerdWallet.

Business Loan Attainment

Once upon a time, getting a business loan meant walking into your local bank branch and convincing the lender to take a chance on you. Fortunately, there are more online options than ever before, but you must know what to look for.

 

Your growing business can benefit from a variety of financing solutions with low interest rates. Some common solutions include term loans, in which a lender provides a lump sum that you may back over a specified time period of one to five years; and business lines of credit, in which you borrow a maximum credit limit and pay interest rates on only the capital borrowed from the credit line.

And unlike the loans of yesteryear, you don't have to wait very long. Most online business loans get you the money you need within a few days. If your business needs a capital infusion to keep up with industry changes, check out learning resources like the Small Business Administration and Fundera to identify the loan that best addresses your business requirements and unique financial situation.

For the rest of the piece, check out the AMEX Business site.

Managing Your Business for Profitability

A slow and steady growth strategy wins the race—or does it?

Some new businesses take time to gain momentum and ultimately become profitable, while others go from zero to successful much more quickly.

As someone whose business was in the former category, I set out to learn the secrets of owners who experienced rapid business growth. What did they do, and could their growth strategy be replicated?

Address Customer Complaints

We've all heard that a major factor in a new business' success is whether that business fills a niche or meets an untapped customer need. But if you want to employ an effective growth strategy, you might want to take that idea a step further and provide relief to customers who are vocally expressing anger with a current state of affairs.

Erica Douglass, CEO of the Austin, Texas-based electronics repair shop 1Up Repairs, did just that.

“We noticed that mobile phone manufacturers were making it difficult to get products fixed or working optimally," Douglass says. “Our customers were waiting in lines longer than the DMV to get a cracked screen repaired. If a phone port broke, they'd have to mail the product in and pay upwards of $100. Their batteries would wear out and they'd be forced to buy new phones.

"We addressed an ongoing customer frustration by providing fast and easy repairs to items that most consider essential to their daily lives," she continues, "and in doing so went from a single shop to six in a few years."

Build a Memorable Brand

Will Robins, CEO of men's grooming venture Manscaped, didn't want his new company to be just another provider of razors or body lotion. As he conducted market research, he learned there was a serious deficit in safe, easy-to-use products to groom below the belt.

“That was our plug," says Robins. “Our new brand, Manscaped, offers men not just fancy electric trimmers and razors, but also ones that feature nick prevention—safety guards that prevent customers from getting into a hairy situation. Manscaped became associated with comfort, assurance and the removal of dread for guys ranging from tweens to 50 year olds."

Robins' growth strategy included fully expressing the brand, but in doing so, he and his team did more than develop a cool logo and tagline.

“Through our digital presence and content, especially our humorous videos, we created a unique voice that makes our audience laugh and in the process wins them over to trying the products."

The Manscaped brand caught so much attention that it was featured—and funded—on the ABC television series Shark Tank.

For more where this came from, head on over to the AMEX Business site.

Entrepreneurial Accounting: How's Your Reconciliation?

As a business owner who does a fair amount of her own accounting, I come up against reconciliation frequently. And, as a business and workplace adviser to others, I recognize its importance. Reconciliation is part of the ongoing accounting mix that leverages two or more financial records to make sure numbers match.

In other words, it helps owners and accountants demonstrate that the money going out of an account is equal to the amount spent, and that the amount coming in is equal to the amount earned. Account reconciliation provides a mechanism for accurate balancing at the end of each recording period. If you don't do it properly, you will move forward with compounding inaccuracies and will risk your business' overall integrity.

When I started my business in 2004, the new Sarbanes Oxley Act had greatly tightened the reins on reporting reliability. Although the law had the biggest impact on large corporations, it encouraged me to establish strong accounting practices. I'll admit that I struggled with account reconciliation. An ongoing problem involved client payments that arrived significantly after I declared the income. But fortunately, I never experienced strange inconsistencies I couldn't explain.

Over the last 14 years, I've witnessed and personally experienced the following reconciliation pitfalls I hope other business owners can avoid.

Reconciliation Pitfall #1: The Dreaded Spreadsheet

As someone who studies and applies future of work technology, I'm embarrassed to admit that I left my spreadsheets kicking and screaming. I was comfortable with them and grossly underestimated the manual processes involved with reconciliation. I regularly spent hours trying to get to the heart of a single discrepancy and even then, sometimes couldn't overcome the danger of human error. Today, we have the advantage of much more accurate cloud-based solutions to access real-time financial data from any device at any time and track the flow/monitor the status of each reconciliation. Just make sure you certify and secure your chosen system.

Reconciliation Pitfall #2: Non-Standard Processes

I can't tell you how many times I fell prey to this one. I'd do reconciliation one way, my business manager would have another approach, and then our accountant would come in and use a third technique. As you can imagine, this lack of standardization was problematic. To avoid this pitfall, sit down with all relevant parties and draft your organization's reconciliation policies. Store them in an online system connected to your financial data, make sure anyone new coming into the organization understands them and knows where to find them and emphasize their importance.

For more where this came from, check out the American Express Business site.

Essential Basics of Cash Flow Management

Cash-flow management involves close monitoring of cash flow, which is the amount of cash being transferred into and out of a business. 

If your organization has positive cash flow, it means that the amount of cash available at the beginning of a period (opening balance) is less than the amount at the end of that period (closing balance). In order to remain in business over an extended period of time, an organization must maintain positive cash flow.

I talked to two experienced owners—Brandon Harris, president of content marketing agency NUMedia and Christine Yaged, chief product officer of finance information portal FinanceBuzz —to share their most critical cash-flow management tips.

1. Stay within your means.

Even if your business is growing rapidly, if you don't practice healthy cash-flow management, you can dig a deep hole from which it's difficult to emerge.

"It's easy to find yourself in credit trouble, missing payroll, taking on expensive loans that further your debt and, eventually, declaring bankruptcy," says Harris.

 

 

“It's your job to make sure you can cover your bills so that all stakeholders are satisfied and things are running smoothly," says Yaged. “Otherwise, you'll severely disrupt business operations and spiral from there."

2. Avoid scaling too quickly.

Sustaining positive cash-flow management can mean being patient with your organization's growth, holding off on expansion plans and tempering your excitement about the business's potential.

“Be careful not to overextend with too many early hires and a bunch of credit card debt," says Harris. “Build your war chest organically, and you'll thank yourself in the long term. I've tried the fast, hard money route, and the stress on your business and your life is simply not worth it."

For more where this came from, head over to the AMEX OpenForum.

Securing a Business Loan for Your Established Organization

There is a great deal of advice for securing a business loan for a company that's just getting off the ground. But what's less frequently discussed is what an owner should do for financial help long after the initial setup.

For many owners, a business loan might mean the difference between surviving and having to abandon the organization. To get to the bottom of this issue, I spoke to Duran Inci, co-founder of marketing agency Optimum7, and Dan Robbins, chief operating officer of skincare company OC Facial Care Center

Applying When Your Business Is Doing Well

Inci and Robbins both have business loan experience. Inci obtained a Small Business Administration loan as well as a separate credit line for his consulting business.

“I wanted to have options in terms of growth, additional marketing, hiring and scalability," he explains. "I believe that businesses should start looking for loans not when things are going bad, but when things are going great."

 

With the common saying “Banks lend when you don't need it, and don't lend when you do" in mind, Robbins applied for a loan while his business was in good shape.

“We'd been paying in cash for store expansion, inventory and all other business aspects," he says. “But last year, I heard [a judge on Shark Tank] suggest taking out loans while holding cash so you can protect your ability to pay interest and keep the the loan afloat, and I immediately changed my way of thinking. I realized that if something bad was to happen and I had no cash, it could destroy our business."

Convincing Banks to Take a Chance

As a result of the recent financial crisis, many banks have gotten stricter about how and when they lend. “You're much better working with a local or smaller bank with which you already have a relationship," says Robbins.

Many lenders will want to review your business model.

“Banks want to be sure you have the ability to pay back or you have collateral," adds Inci. “They are very specific about the terms as well. At the same time, if you have good revenue and decent financials, it's not hard to get a business loan."

If an owner decides to pursue a business loan, what should they be prepared to do to convince financiers? Both Inci and Robbins say that demonstrating transparency to the lender, with the help of a good accountant or bookkeeper, can help.

“Your cash flow and the profitability of the business should look good," says Inci. “Furthermore, the debt to income ratio should not be alarming. If you feel like the terms and/or interest rates are high with private lending, SBA loans are better in this respect. However, you should expect higher initial fees."

On the whole, business loan interest rates are comparatively low.

“If you can take out a loan now and save your cash flow and profit, it's better," says Inci. “Additionally, building that lending relationship today will be more impactful later when you might actually need the loan."

For the rest of the piece, head over to the AMEX OpenForum.

How New Businesses Secure Funding

Funding can be a major hurdle for business owners. While many owners traditionally turn to banks, loans are increasingly harder to obtain thanks to increased regulations. From credit cards and grants to self-funding and venture capital, entrepreneurs are finding creative ways to make their business dreams a reality.

We asked three small-business owners—Nick Gentry, CEO of Iconic Solutions in Raleigh, North Carolina; Wesley Mathews, co-founder of High Level Marketing in Detroit; and Hesam Meshkat, CEO of Guzu in Los Angeles—to share their experiences with funding and their advice for securing enough financing for their businesses.

How did you initially get funding for your company?

Nick Gentry: At first, we pursued every funding option available, including applying for credit lines; giving up equity for convertible notes and seed investments; and even government-sponsored grants.

We chose to bootstrap our operations and fund everything ourselves.  After discussing our business model with key advisers, we realized that a large cash infusion significantly limits how you're able to pivot the business as time goes on. We knew that we would have to evolve our offering as the market changed, and with outside investors this would be more difficult. 

Ultimately it comes down to deciding if you’d rather own your own business or partner in a larger, potentially more successful one. We knew that an external investment would provide operating cash, business expertise and connections, but it also meant loss of control and ownership of our business. 

Wesley Mathews: High Level Marketing was self-funded via credit card. I bootstrapped about 40K to get things going and float expenses for the first six to nine months. This was the only option I considered.

Hesam Meshkat: Initially when we launching Guzu, my partner and I decided to self-fund so that we would maintain ownership. The pro is that we had more control, but the con is that we were personally liable for the business.

Looking back, what’s one key lesson you learned about accepting and using funding?

Meshkat: Since we launched, we did receive a small funding round. The most critical lesson is to allocate those funds to marketing campaigns and expenses that directly connect to revenue coming in.

Mathews: Make sure you have a plan for the dollars. Have a clear vision of what the money is for and how you are going to use it, track it and repay it. Stick to a playbook.

Gentry: After launching multiple products, I’ve learned that it always takes more money and more time than initially anticipated to bring something to market. Make sure there is a clear understanding of cost and timelines, as external investors want their return as quick as possible and will be less likely to fund a subsequent round if they begin to doubt the delivery.

For more where this came from, check out the full interview on the AMEX Open Forum.

All Hail the Blockchain: What It Means for You

You’ve heard the term, but what on earth does it mean? Let’s start with the basics. A blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central, often fee-charging authority.

Bitcoin and the mechanics of blockchain

 If you are familiar with blockchain technology, it may be because of Bitcoin, the first app built using the platform in 2008. Bitcoin’s main premise is to digitally send payments between any two people or organizations without a third-party financial institution. Every time a transaction is made, it’s recorded on the blockchain ledger and each new block is tied to the prior ones via digital signature. Once a block of data is recorded on the ledger, it’s difficult to change or remove, and in order for someone to add a block to the chain, network members have to first ensure it’s valid.

A few key components underpin blockchain technology. First up is the network, which can vary depending on the organization setting up the blockchain. It might include everyone in the public domain (as in Bitcoin) or an exclusive group of known participants. The computers within each network are called nodes.

Then, there is the consensus mechanism, or the set of rules used to verify each transaction. In the Bitcoin blockchain, for instance, the consensus mechanism is called proof of work. Network participants run algorithms to confirm the digital signatures attached to blocks in order to validate new transactions. Once approved, transactions are packaged into a block. They are then re-distributed to all the nodes, which are responsible for ensuring that all records match.

For his article for the Wall Street Journal CIO Journal blog, writer Steven Norton consulted Guardtime, a company that sells blockchain-based products and services to organizations like Ericsson AB. Guardtime provided this example of a complex blockchain in action:

“Assume an organization has 10 transactions per second. Each of those transactions receives its own digital signature. Using a tree structure, those signatures are combined and given a single digital fingerprint — a unique representation of those transactions at a specific time.”

“Once validated, that fingerprint is stored in a blockchain that all the participants can see. A copy of that ledger is also sent back to each organization to store locally. Those signatures can be continuously verified against what is in the blockchain, giving companies a way to monitor the state and integrity of a particular asset or transaction.”

“Anytime a change to data or an asset is proposed, a new, unique digital fingerprint is created. That fingerprint is sent to each client node for validation. If the fingerprints don’t match, or if the change to the data doesn’t fit with the network’s agreed-upon rules, the transaction may not be validated. This setup means the entire network, rather than a central authority, is responsible for ensuring the validity of each transaction.”

Want more? Check out the full article on the QuickBase Fast Track blog.

How Should Small Businesses Manage Their Cash Flow?

Small businesses are in economic recovery mode, but some might agree with me that it has been slower than anticipated. In an end-of-year survey, Wells Fargo reported that "only 39 percent of small-business owners experienced an increase in company revenues over the past 12 months.

At the same time, 47 percent expected cash flow and revenues to increase in 2016." Given a still-far-from-ideal financial picture, we asked three small-business owners—Fritz Heffinger, founder and president of event marketing firm OutCold in Chicago;  Diana Goodwin, founder and CEO of AquaMobile Swim School in Toronto; and Shawn Schulze, CEO of SeniorCare.com in St. Louis, Missouri—what their cash flow management techniques are this year.

Why is cash flow management a critical skill for small-business owners?

Fritz Heffinger: It’s important to learn how your sales go—when your peak times are and when to expect a slowdown. In a perfect world, sales are steady all the time, but any small business knows that is not the case.

Diana Goodwin: Cash flow management is extremely important! You don't want to be stuck in a rut, unable to run a critical marketing campaign because you didn't properly manage your cash. Something like that could cripple your business and impact your sales for the coming year, putting your company in a downward spiral.

Shawn Schulze: When a business has cash on hand and cash reserves, it has much more control. Without available cash, a business relies on debt or new funding sources. Businesses that are operating day by day or have lots of debt are just one unexpected event away from desperation mode. In addition, interest on debt is a costly expense.

How, or where, did you learn to manage your cash flow?

Schulze: After over 10 years in business, I still have a fear of what may happen that could hurt our existing cash flow or require a large, unexpected expense. This fear is great motivation to ensure that we are conservative in our projections, in our expenditures and also in the amount of money we maintain on hand.

At the beginning of every year, I devise a cash flow plan and then set calendar reminders to review our various bank and Paypal accounts every two weeks to see if any money needs to be shifted.

Goodwin: My company AquaMobile is a seasonal business, so I knew right from the outset that cash flow management would be important. From there, I’ve just made sure I’m always aware of our current spending and future cash needs.

Heffinger: I wish I could say I read this book or had someone on staff, but it has been a trial by fire. I have had help from a good friend who works at a large bank, but our business is so unique that it was a risk in the beginning.

For the rest of the interview, head over to the AMEX Open Forum.

What No One Tells You About Getting Raises

According to Tribe HR’s  Pay Raise Index, women received more pay raises than men during 2012, but men earned larger pay raises. TribeHR analyzed salary and workplace recognition (“kudos”) data from 20,000 employees at 2,200 small to medium-sized companies between Q1-Q3 2012, and found that, 7.4 percent of women received raises while only 6.2 percent of men received raises.

Overall, the Index reported that average salary increase for employees at small and medium-sized businesses grew by almost 11 percent between Q1 and Q3 2012. The size of the average salary raise grew from 8 percent in Q1, to 13 percent in Q2, but then dropped to 11 percent in Q3.

Peer Recognition: An Under-the-Radar Influencer

More interestingly, however, the study also examined the correlation between salary increases and employees who had received documented recognition for a job well done. It found that 85 percent of documented recognition was given by peers, and that employees who received recognition from peers were two to three times more likely to earn a pay raise.

So it’s recognition from peers rather than recognition from managers that matters most.  Go figure.  In any case, it has always been important to purposefully raise the visibility of your terrific contributions within the organization.  But given this new information, it’s now essential.  If you want a raise this year or next, it’s up to you to document as much positive feedback from your peers as possible.

How do you do this?  Find out more over at Intuit's Fast Track blog.