by Bonnie Ayers Namkung

Tips for Financial Stability & Growth

Wasn’t it Alice in Wonderland’s Cheshire cat who said, ‘if you don’t know where you’re going, it doesn’t matter which road you take’?” says Kathryn Bamford, a principal of Recharge, a Bellevue, Wash., marketing consulting group. “Every business needs a plan. We ask our clients, from two-person companies to multimillion-dollar corporations, to look into the future. Imagine it’s 2007, and you’re reviewing your accomplishments for the last five years. Maybe you’ve expanded, or moved into a more sophisticated, higher-end product line. Write down the story of your successes.”

Even in uncertain economic times, you can turn your story into reality; use it to make a plan. Break your narrative into measurable goals, with short-term and long-term deadlines, like these:

• Research new suppliers and shave 15 percent off raw material costs by Oct. 31.
• Increase sales of your three best sellers by 10 percent before the end of this year.
• Put $300 to $600 per month into savings, to total $15,000 by the end of 2004.

Key planning element — the cash flow

“Often artists think that as long as they produce good work, they’re OK, so they don’t pay attention to finances,” says Boulder, Colo., CPA Rick Simons. “It’s a mistake.” Cash flow predictions can be an essential planning tool. With a few simple steps, you can build a cash flow for next month, or even better, for the coming year:

• First, start a ledger column with your expected ending cash balance for the current month.
• List your recurring expenses: for example, rent, utilities, loan payments, insurance and salaries.
  
• Lay out your planned costs: advertising, shipping, travel, materials and merchandise.
• Plug in your expected income for the month, including interest earned on savings.
• Subtract your projected payments from the beginning balance, and add the estimated income.

The final balance tells you whether you might need to postpone expenditures, draw on your credit line, or use extra funds to take advantage of a volume discount purchase.

Carry your ending cash flow balance to the top of the next column and repeat the steps, filling in income and expenses for 11 more months, taking into account seasonal dips and surges. A cash flow is a fluid document, so adjust the beginning cash balance and make other changes at least every quarter.

Cash on tap

Access to a timely cash infusion is a business lifeline. If possible, open a credit line when you start your company. Because you’re charged interest only when you draw out funds, it’s a cost-effective way to borrow. Cultivate an ongoing relationship with your branch’s loan officer; drop by with good news — a large order you received, a newspaper article that mentions your growing business, or pass along your updated financial statements.

Family and friends already trust you and know your company — ask them to invest, either as lenders or shareholders. Be sure to draw up and sign documents to formalize the arrangements.

Homeowners have a ready source of cash: an equity-secured line of credit. Or, raise money by selling unneeded office equipment, furniture, or store fixtures. Think about renting out unused studio or warehouse space. Try to find a tenant in a complementary, non-competing business — someone with whom you can share services or order materials in bulk.

Be tightfisted

“I’ve slowed down buying for my store,” says Emily Dvorin, owner of Various and Sundries in San Anselmo, Calif. She says, “I’m rearranging displays to look new and relying more on consignment pieces to give me a fresh mix.”

If you need new equipment, consider leasing, and spread the payments over the equipment’s useful life. You can afford higher-end equipment with a lower initial cost, and return the eventually obsolete equipment when the lease expires.

Lower your costs by comparing suppliers. If you’re happy with your current vendors, let them know, and ask how to qualify for discounts, which are often based on
payment terms, quantities ordered, and the history of your relationship.

Increase sales, not sales expenses

Any time is the right time to boost your sales activities, and when the economy is sluggish, the best ways are low-cost.

“Printed materials have really increased our sales,” says Carolyn Earley, of Fireglass, creators of fused glassware in Lake Havasu City, Ariz. “We use the computer for marketing; we print bios to send with our wholesale orders, an information card to go with our product, and retail and wholesale catalogs. Maybe when we get our materials perfected we’ll have them professionally printed, but, for now, it’s a good, inexpensive way to go.”

Greeting card producer Joanne Spotswood of PaperTrail Press in San Rafael, Calif., says she and partner Irene McGill have discovered an effective sales technique that costs them nothing but time. “It’s follow-up, follow-up, follow-up. We call our customers, a few every day. ‘Have you seen our new catalog?’ or ‘How are our cards selling for you?’ It’s a reminder that we’re here, and it works.”

“I’ve become more selective about the shows I’m in; I do my research,” says Pocatello, Idaho, jewelry designer Lori Piccolo. “I scrutinize the area and the type of work that will be in the show.” For her, putting some time into homework translates to sales.

Extra care with extra cash

A CPA who engineered her own early retirement suggests first socking away three to four months of business operating expenses, or for a sole proprietor, enough for at least three months of living expenses. Be sure the funds are in an accessible, interest-bearing account, like a money market savings. “Once you have a cash cushion, then fund your retirement account. I’ve seen people put money into retirement prematurely, and when business slows, they have to pay a penalty to take the funds back out.”

You may want to put your profits into business improvements. After building up your savings, evaluate your planned investment by determining whether the improvements are worth their cost even in a sales downturn.

When the good times roll, your tax bill is likely to climb with your profits. Keep in touch with your accountant so you know how much to set aside for taxes.

A simple answer

Prepare for the future, and don’t wait to start; it’s a simple way to support your company’s stability and growth. Business sure isn’t war, but General George Patton’s theory still applies: “A good plan executed right now is far better than a perfect plan executed next week.”