Managing Your Small Business Finances

Only 40 percent of smaller independently owned and operated businesses survive for five years or more, according to the U.S. Small Business Association. The Federation of Independent Business (NFIB) reports that only 39 percent of these independent businesses are profitable.

If you want your business to succeed, you’ll have to learn how to manage your business finances.

Poor business financial management is one of the top reasons businesses fail. Managing your personal finances can be challenging, and managing your business finances is even more challenging. But if you can’t collect, track and save your money appropriately, you’ll be risking your profitability and success.

Improve Your Business Financial Management

Be proactive. Applying sound business principles to all of your decisions will help ensure your company’s success and longevity. Don’t rely solely on your accountant, bookkeeper, financial planner or banker. Keep all your records up-to-date, learn the basic principles of small business finance, and apply them on a daily basis.

Collections: The First Step to Good Business Finances

  • Credits and Collections: Determine if you should accept credit cards, and other forms of payments, and learn the best methods for quickly and efficiently collecting debts. Find out how alternative payments, such as trading products and services, or factoring, can positively or negatively affect your business.

Tracking: The Second Step to Good Business Finances

  • Basic Bookkeeping: Learn how to record your daily transactions, generate financial statements, and work with your accountant on a regular basis – or do it yourself with any one of the many financial management tools that are available today.
  • Cash Flow Management: Learn to manage your cash and liquid assets by assessing and projecting your needs. Always look for ways to increase your income and reduce your expenses.
  • Trend Forecasting: Identify positive and negatives factors that can help you manage your business finances more efficiently over time. Write these down and make sure you check them periodically.

Other Important Areas for Good Business Financial Management

  • Banking: Learn which type of savings and checking accounts are best suited to your needs.
  • Investing: Learn how to maximize the return on your surplus cash by choosing the best investments.
  • Evaluating: Evaluate expensive potential capital investments, like equipment, facilities and more.

Private Investors and Small Business Financing

To most people the only source of loans are banks and credit unions. However the finance world has many more players than that. Real estate investors have long used private mortgage investors as a way of buying real estate. Small businesses are now learning they can also use private investors to secure the funds they need to expand their businesses.

Private investors are individuals who are willing to lend their money to other people. In return the private lender receives a higher interest rate than they would get if they just put their money in the bank. Every private lender has their own lending criteria, which is often less strenuous than the red tape of a bank. I don’t meant to imply that getting a private loan is easy or guaranteed, rather just that the terms and conditions of a private loan are far more flexible because you only have to convince one person of the merits of your business proposition.

Make sure the business deal is a good one. Don’t waste your time or theirs by approaching them without a business plan or having done your due diligence. You often only have one shot to impress a private investor so don’t go into the meeting unprepared. Be confident but take any critique they offer to heart. They may help you by giving you solid insight into why you should not go forward with the plan you presented them or at least show you where your plan is weak. Listen carefully and take notes on what is said if the person declines to invest. You can tweak your business plan for the next potential investor. Or maybe the investor will say that you should fix the plan and come see them again.

Most private investors are savvy business people themselves and will understand a good business transaction when they see it. They will also be able to see through any scam someone may try to pull. Private lenders are not going to invest in a bad deal. If your business idea has merit then chances are the private lender will discuss terms with you. You are not obligated to take the terms of their loan anymore than the lender is obligated to fund the loan. Negotiate the terms to see if you can get a lower interest rate if you think it is too high. Don’t be afraid to ask for a lower interest rate or a longer period to repay.

Small Business Lender Files For Bankruptcy

CIT Group, a nation’s leading lender to small businesses, has filed for Chapter 11 bankruptcy protection. The bankruptcy was expected, since the company was struggling for months to avoid it, and came very close to declaring Chapter 11 bankruptcy in July 2009 after the Treasury rejected the CIT’s request for additional bailout money, but was rescued making the agreement with the bondholders group. The lender filed for bankruptcy on Sunday, after the debt-exchange offer made to CIT’s bondholders failed. Company’s bondholders opted for a prepackaged reorganization plan which will reduce its debt by $10 billion and allow it to continue doing business.

The troubled lender posted more than $5 billion in losses in the last nine quarters. With $71 billion in assets, CIT bankruptcy filing is one of the biggest in the U.S. history, following giant companies Washington Mutual Inc., Lehman Brothers Holding Inc., WorldCom Inc., and General Motors Corp. The $2.3 billion in Troubled Asset Relief Program (TARP) money that the U.S. government gave CIT is most likely to be lost.

CIT seriously pulled back on its lending to businesses as most recent earnings report shows that the company originated just $4.4 billion worth of new business in the first half of 2009 compared to $11.3 billion in the first 6 months of 2008. CIT said Sunday that none of its operating units, including Utah-based CIT Bank, were included in the filing, and are planing to continue lending. CIT has filed a number of motions to allow it to continue operations, including requests to keep paying salaries and other employee benefits and to pay its vendors in full, keeping its small business financing functional. But still thousands of small businesses are feeling unease about the CIT’s process.

CIT lends to a million small and medium businesses, and filing for bankruptcy will put many of those businesses, especially retailers, in a difficult position of having to look for a new source of funding. The company provides financing to about 2,000 vendors supplying 300,000 U.S. retailers that are relying on CTI to cover various costs including paying for orders and making payroll. Somewhere around 60% of the apparel industry is depending on CIT for financing, and retail groups and analysts are expressing their concern that the lender’s bankruptcy will probably add to the uncertainty in the retail sector. For retailers it is critical to have a lender they can rely on, especially during and after the holiday season when they will need to renew the supplies of merchandise. The retail industry has been preparing to switch to alternative source of financing since the last July when CIT’s financial difficulties drastically intensified, but finding that alternative at rival companies has not been easy since the credit market is still not loosening up for the small and medium companies.