Thinking Money | Free Financial Advice and Tips

What is the best approach to cash management for business?

Posted on 29. Mar, 2012.

If you want to have a successful business, it’s absolutely essential to know how you need to go about managing what you spend and what you have coming in. Many businesses make this mistake early on and fail as a result – so what are the options you need to focus on to keep this difficult balance?

Well, like most things in life – and certainly in the world of entrepreneurship – there’s no real easy answer. There are a wide range of cash management products and services now available that can be invaluable, but there are few things you’ll want to keep in mind at all times. Here are just five:

Shorten the gaps

It’s much easier to keep things under control if you can shorten the gaps between spending money and returning a profit. Of course, this is easier said than done, but making sure customers pay on time and keeping a careful track of invoicing can help. You may want to charge penalty interest for late payment, offer discounts for prompt payment or make agreements based on deposits and staged payments for larger contracts.

Keep your suppliers happy

Your suppliers are just like you, they like to be paid on time for their services and are likely to respond better to your needs if you treat them as you would like to be treated. If you give them regular orders though, you may find they are agreeable to more flexible credit terms or discounts – just make sure you aren’t over-ordering or this could backfire badly.

Know your taxation

Tax is something of a minefield and as a business you are likely to be liable for everything from income and corporation tax to business rates and stamp duty. The key to all of this is keeping simple yet comprehensive records that let you calculate what you owe easily and accurately. Make major purchases at the end rather than the start of a VAT period and check with HM Revenue & Customs to see if you are eligible for any support.

All of the above are business basics you’ll want to get some understanding of at the earliest point possible, but don’t rule out the many cash flow management services that are on offer from banks and building societies that may also help. Whether it is business banking, overdraft facilities, or asset management, there are tools available that you should take advantage of if you are in business for the long haul.

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How to Increase Cash flow, Profit, Net worth and Credit rating

Posted on 07. Nov, 2011.

Why are we in business?

The Equifax Quarter 3 Business Failures Report shows a 20.3% Year on Year increase in companies going under and a 7.8% increase Quarter on Quarter. With a total of 7,994 businesses failing in Q3 2011, this is the highest number of failures for more than 12 months and is not far short of the peak in numbers seen in Quarter 2 2009 (8874).

The biggest reason for failure is insufficient Cash Flow and a real understanding on how to maximize cashflow and protect it.

If you can answer YES to any of the below, then it is time to get help, otherwise your business will end up being one of the failures.

• Sleepless nights over business finances
• Customers paying late
• Bad Debt increasing
• No consistency in the debt collection process
• Poor Credit rating
• Overdraft facility heavily used
• Using Credit Cards to clear business liabilities or paying suppliers
• Late payments increasing
• No Procedures or policies to support the business continuation and growth
• Suppliers demanding you adhere to their Credit Terms
• Giving credit without considering the risks

Wow, as business owners we like to suffer sometimes in silence.

I will tell you straight, get Credit Management right and you will get a ROI, fact. I know, I have done it and I have being doing it for over 20 years.

A lot of businesses see Credit Management as a cost and a burden; after all, all we are talking about is picking up a phone, right! WRONG. This thinking will jeopardize all the hard work in setting up and continuing to be profitable in business.

Debt collection is just one piece of the puzzle.

Credit Management is a saving if dealt with effectively, it will increase your net worth, profit, credit rating and cash flow, after all, you went in to business to increase all four elements I mentioned not de-crease them.

I worked for a multi-national, multi- million pound organisation, and over a period of the last three years I worked there I saved them in excess of over £400k.

AND before you say “I’m not a multi-million pound organisation, I’m a very small company with minimal funds”. If that is the case then it is far more important as a small business you get it right or you will not survive.

IMPROVED REDUCED

Access to resources Cost of Sale
Asset Protection Cost of Operations
Profit Protection Relationship Risk
Client retention in Sales Exposure to external forces
Operational Efficiencies
Cash Flow
Revenue

Credit Management protects your profit, without it you will suffer or fail in business especially if you give credit. A truer saying has never been said:

“If revenue is the engine that powers your company, Credit Management is the oil that keeps it flowing”.

In business we have all heard the saying ‘Cash is King’ or ‘A Sale is not a Sale, until the money is in the Bank’; unfortunately many businesses forget this, as they are more concerned with upsetting or losing a customer. It is not all about the customer wanting you, it is also about you wanting that customer, believe me, there are many customers out there you don’t want.

So, what’s it all about Graham, how do you get the perfect customer? It is not about the perfect customer, it is about you educating the customer on what you expect so they become that perfect customer that pays regularly and on time.

Look internally at your own Sales Ledger, you will know the customers that pay you on time, a question you should be asking yourself is, why are they paying you on time, and why are your other customers not paying you on time.

You cannot always blame the customer!. If you were herding sheep into a pen 50 meters away, what would you do to accomplish it? You would guide them and cajole them to where you want them to go, it’s exactly the same with your customers, OK, they are not sheep, but the principle still stands. You need to guide them, cajole them, educate them in the way you work and what you expect in return for the products or services you have provided, if you don’t, what do you think will happen, yep, the same old customers will still not pay you on time.

Good Credit Management is about your relationship with your clients. Social Psychologists say that the three greatest fears are death, public speaking and asking for money. You know what I mean, when you get the gut wrenching feeling when someone owes you money and they are not paying you. Businesses would rather do without the money than risk a confrontation with a client and unfortunately the bankruptcy statistics are evidence that this is a serious issue. Many businesses instead go for the additional funding rather than taking a look at the internal cash flow mechanisms of the business.

If you give credit you need to have strong credit management procedures and policies in place. In my profession I come across many businesses that don’t have a clue of what their Debtor Days Outstanding (DSO) is. Every business that gives out credit should be using this Key Performance Indicator.

There is a strong chance, depending on the industry you are in, that 25/40% of your cus-tomer base will probably pay you late, but you don’t have to be a statistic in the late pay-ment culture if you put in place simple credit control procedures and be disciplined in your actions.

Most businesses have delayed payment of an invoice at some point, often past the due date. It is very tempting to do this especially if your sales are down and there are no consequences for paying late.

So with this in mind, look at where a substantial amount of cash may be tied up on your sales ledger, otherwise known as account receivables or debtors. All successful businesses rely on money flowing through the company at a certain rate to meet the businesses commitments. If this flow of money is sluggish, then you have a cashflow issue.

Credit control is not an exact science. It takes dedication, hard work and discipline to set up and maintain a credit control function in line with your business commitments and future operations.

So in summary, it is fatal to ignore the back office, get staffed trained in Credit Management get sales and credit control together. Get the rules in place for credit checking and write up sustainable procedures and polices so all staff members understand what is expected.

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Choosing a student account

Posted on 12. Sep, 2011.

Student accounts can be very rewarding, so they are a must have for all University goers.

Although banks do initially lose money on student accounts, they act as a loss leader because they work to the fact that many students will continue to use the bank for years to come, generating profits through other products, from savings accounts to mortgages.

Student accounts are designed specifically with students in mind, allowing money to be paid in and withdrawn, as well as offering a number of other benefits including 0% overdrafts and discounts on products and services.

Below are some on the main things to keep in mind when searching for the best student account.

ñ  Look around for the best interest free overdraft

Most students will find the overdraft facility is the most useful tool they have, so it can pay off to find the best deal. Look into how the overdrafts are given, as some accounts advertise big limits but in the small-print you will see that these can’t be reached until the second or third year of study.

While many banks try to attract students with cash incentives or discounts, the most valuable feature of all is the 0% overdraft (unless you don’t need it). This can also be true after you have graduated, so look into the graduate accounts that will follow.

ñ  Always stay within your overdraft

It very important to make sure you never exceed your 0% limit. This isn’t just a rule for student accounts, it’s something you need to stick to for life.

Doing so is likely to lead to penalty charges, so if you’re desperate, go and speak to your bank as they may agree to increase your limit.

If you do find you have accidentally gone over your overdraft and you are charged, call your bank to explain – they may refund the charges if you are back within your limit and don’t make a habit of it. Something else to keep in mind is that different banks charge different amounts, so you could be charged up to £30 per transaction upon exceeding your limit.

ñ  Building up your credit score

Any products that allow you to spend money that you don’t already have, including bank accounts with overdrafts, are used to build up a picture of your financial activity which will affect your credit score. The data is stored, so if you stay within your limits you will build up a good credit rating.

However, exceeding your overdraft will have a negative affect on your credit score.

Your credit score is used by lenders to make an informed decision on how much of a risk you pose to them. Prove that you can be trusted with credit and you are more likely to be accepted on application to the top deals on loans, mortgages and credit cards.

This rule also applies to student credit cards, so be sure to stay within your credit limits.

ñ  Don’t choose your provider based on convenience

Just because a bank has a branch near to your campus, or it is the bank that you have used in the past, it doesn’t make it a reason to open a student account with them.

Most cash points offer free withdrawals these days and most banks come with online banking facilities, so this should mean you won’t need to visit a branch very often. Therefore, you should focus your reasoning purely on what the account offers.

ñ  Switch to a graduate account after finishing your studies

Once you have graduated, you will still be eligible for preferential terms, including interest free overdrafts to help you clear your debts without having to pay interest for the privilege. In some cases these accounts are free, but those that do charge often come with other benefits such as mobile phone insurance and breakdown cover, which may be less than you currently pay for these services.

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The Deadly Lifesaver: Things to Know (or Avoid) When Declaring Bankruptcy

Posted on 16. Aug, 2011.

When you made your first couple of dimes at your lemonade stand as a kid, the idea of bankruptcy never crossed your mind. Back then, making money seemed to be as easy as mixing sugar and water, but, unfortunately, our finances could sometimes get away from us and turn into more of a burden than a blessing.

Filing for bankruptcy when you’re in a financial bind is no fantasy; it’s something millions of Americans must resort to each year. In the event that you think you need to declare bankruptcy, here are a few things to consider before taking the plunge.

Explore your options

It’s very important to understand that just because you’re in debt doesn’t mean bankruptcy should be your first option. Depending on how much debt you’ve incurred, you may have a number of options available to you.

Debt Consolidation: Taking out a loan in order to pay for your other loans may seem counterintuitive, but it could mean lower interest rates and a single, steady road to financial revival. One effective way to consolidate your debts is to apply for a balance transfer card. These allow you to move your debt from other credit cards into one place so you can consolidate your payments and whittle away your debt without interest for a time. However, keep in mind that most credit cards charge 3-5% of however much you transfer.

Work with a Credit Counselor: You can try to take control of your debt situation with the help of a credit counselor approved by the Department of Justice. They’re there to help you get organized and come up with effective strategies to slowly pull yourself out of debt. Usually they can offer solutions to your financial woes, but if not, they can at least properly assess whether or not filing for bankruptcy is the right option for you.

Still in trouble?

If you’ve exhausted these options and still find yourself in a bind, it’s important to know exactly how bankruptcy works and how it will affect you. First and foremost, filing for bankruptcy significantly lowers your credit score—somewhere between 130 and 240 points. When you file for bankruptcy, it remains on your credit report for 10 years, making it difficult to get any credit or to make big purchases, like a house or a car, for a very long time.

It costs about $1,500 to even start the filing process and you’ll need to do pre- and post-bankruptcy counseling on your dollar according to the amendments to the law made in 2005.

Next, you need to consider which kind of bankruptcy you’d like to file: Chapter 7 or Chapter 13. Chapter 7 bankruptcy will wipe out all of your debts except for child support, alimony, student loans, and income tax debt, to name a few. Be sure to check if your debt can be lifted to avoid filing and ruining your credit score for no reason. You will be required to take a means test to see if you qualify for Chapter 7 bankruptcy or if your income is steady enough to gradually pay off your debts. It also remains on your record for 10 years, so make sure it’s the best option.

Chapter 13, on the other hand, allows you to pay off some of your debts over a 5-year period. You are assigned a payment plan that works with your current, stable income, and are given a little bit more breathing room. This stays on your record for 10 years—shorter than Chapter 7, but just as hard on your credit score.

Never Do It Alone

The best advice one could give is to never try to do this alone. There are plenty of sites claiming to help you avoid lawyer fees by declaring bankruptcy on your own, but the truth is, it just isn’t worth it. There is so much that could get lost or confused in the entire process that you may end up in a bigger jam than before. Find a credit counselor or a lawyer well versed in credit card debt to help you get through the process with as little damage as possible.

Bankruptcy should always be your last resort. It may be devastating to start, but it could eventually end up being your one lifeline when you need it most.
Tim Chen is the CEO of NerdWallet, a credit card company dedicated to finding you the best credit cards out there.

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Update on the Credit Card Scene

Posted on 12. May, 2010.

This is a guest post by Mr Credit Card from www.askmrcreditcard.com. Today, he is going to update us the latest developments in credit card products and marketing strategy since the CARD Act. Please check his best credit card deals section if you are looking for a new card

The CARD Act in the US has cleaned up a lot of bad practices that credit card issuers used to practice. But that does not mean that consumers are off the hook. When you are applying for a credit card or already have one, you still have to be careful of the following things.

Balance Transfer Deals – In the good old days of easy credit, credit card issuers were falling all over themselves offering 0% balance transfer credit cards for 12 months and they waived their balance transfer fees. But when the carpet got pulled from underneath, they started charging balance transfer fees and reduced their introductory period.

But the good old times seems to be back. Credit Card issuers are offering balance transfer deals again for longer periods. But now, consumers have to be aware of how they are offering them. There are basically two types of offers. The first type will offer you for a set introductory period – for example, 0% for 12 months. Such deals are clear in the sense that if you get approved, you get the 0% rate for 12 months.

But there is another type of balance transfer deal. And that is issuers offering 0% balance transfer deals for up to a certain time period. Using this language, credit card issuers entice consumers with what appears to be an attracting teaser deal. But for those who do not have stellar credit, they are likely to get an introductory period that is less than what is advertised. They did not do anything wrong. It is just that consumers tend not to really read and question a deal when they see one and ask if there is any catch. The reason this can be frustrating for consumers is that whether they get a balance transfer deal for 6 months or 12 months, they still have to pay a fixed balance transfer fee. Hence, in most cases, a longer introductory period always works out better.

Gas Rewards Changes – There have been changes in the way gas credit cards offer their rewards as well. When oil prices skyrocketed in, gas rewards started changing. Rather than paying a flat percentage (like 3% rebates for gas purchases), some cards have instead started to pay rebates in the form of getting a couple of cents rebates per gallon of gasoline purchased! This was to protect themselves from escalating oil prices.

Meanwhile, many gas credit cards started reducing their payouts on gas rebates. While many offered 5% rebates in the past, many have now reduced them to about 3%.

These changes are something that folks who are thinking of getting gas rewards should consider.

Subprime Issuers Get Hit – The new CARD Act has reined in on the fees that sub prime credit card issuers are allowed to charge consumers. They are now limited to charging only 25% of the credit limits given. As a result, we have actually seen many sub prime issuers stop issuing cards altogether! This is probably a great thing for the public as a whole as many of these cards should have never been issued in the first place.

More Focus on People with Good Credit – As the sub prime market becomes less profitable due to higher defaults and the CARD Act, credit card issuers are increasingly coming up with new credit cards for people with excellent credit. Chase has revamped their reward cards with a new Chase Sapphire Card. American Express has introduced a new Premier Rewards Gold card that lets you earn triple points when you buy airline tickets. So while may folks who carry a balance may have their credit limits slashed, those who pay in full every month have more rewards cards to choose from!

To sum up – I think the CARD Act has changed many practices of credit card issuers. The economic environment has also changed the behavior of credit card issuers and the types of cards they offer. These are just some of the changes we have seen. There will be many more and perhaps I’ll highlight them in another post.

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How Can I Get Money To Start My Own Business?

Posted on 27. Nov, 2009.

When you are ready to start your own business, you will probably need to get some business financing. Business start up costs can be rather hefty – depending on what kind of business you want to start. Costs may be even higher if you start a franchise business. Here are some places you can go to find the business finances you need to get your new business off the ground.

Get a Good Business Plan

Obtaining a well-written and through business plan is a must if you are to be successful in getting the business funding you want. All lenders will require it – and others will want to see it as well. An easy way to do it is to hire someone with experience to write it for you. Make sure that it is realistic and avoid inflating any numbers – lenders will recognize numbers and projections that are too good to be true.

Apply for Government Grants

The Government of England is willing to help new businesses get off the ground. You certainly do to want to miss this opportunity to get this type of business financing because grant money is free. You should apply early in the process of finding business start up money because it will mean having to borrow less.

In addition, you may also be eligible for business grants from the European Union. They also provide grant money for some new businesses, as well.

Talk to Family, Friends and Relatives

The next step in getting money is to go to your family and relatives and see if they are willing to help you. Even if you do not go further than your relatives, it is still important to have a business plan. By showing them you are looking at this from a professional business perspective – they may be willing to lend or give you even more money.

Approach Bank Lenders

After you get all the free business financing you can get, then it is time to go after other sources – the banks or credit unions. It will take some time to get money from a lender, so be sure to allow plenty of time and be willing to talk to several. Compare the value of loans you are offered in order to find the best terms and interest rates.

Find Angel Investors

Angel investors are individuals or groups who are willing to lend you venture capital to start your own business. They will look for a good percentage of profit over a period of time. The better your business plan looks, in terms of details and realistic overviews, the more they will like it. In addition, many angel investors are experienced business men and women who may be able to provide quality guidance, too.

Credit Cards

The other option is to take out a business credit card. Many different credit card companies will offer several different credit cards ranging from those targeted towards small business credit cards to those that reward users with airmiles or cash back.

There are also other sources of money for you to tap into for your business start-up. Various business associations are always looking for new businesses to invest in, which means you will want to consider local business groups. You can get the business financing you need, but be sure to be professional in everything as you approach people about your new business offering. They will want to hear about it, and don’t forget to take advantage of networking, too.

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Bank of America to test annual fee charges on credit cards

Posted on 22. Oct, 2009.

Bank of America announced plans to pilot an annual fee charge of $29 to $99 on a few of its credit card customers worldwide (about 1 percent) beginning in 2010.

Bank of America is the third-largest credit card company in the US. (more…)

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Will financial crisis happen again and when?

Posted on 07. Oct, 2009.

A year into the financial crisis, a slow recovery process and another financial crisis is being forecasted by no less a figure but a former US Federal Reserve chief. (more…)

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New Credit Card Rewards

Posted on 30. Sep, 2009.

Traditionally, credit card company reward programs have featured airline mileage, gift certificates, and cash back for customers who spend more on their cards to get top ups. However, today card companies are offering new sets of incentives perhaps in response to the implementation of the first set of rules by credit card bill last week. (more…)

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Preventing a future financial crisis: Restraining the banks?

Posted on 28. Sep, 2009.

Signs of a recovering global economy and performing stocks, and the bankers are quick to reward themselves with fat pay checks and bonuses again – to the dismay of the taxpayers whose moneys bailed the banks out of a crisis they caused in the first place due to such wanton living. Hardly any lessons learnt? (more…)

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