Final Chapter 9, 10, 11, 12, on Entrepreneurship and Small Business Development

Chapter 9       E-Commerce and the Entrepreneur

Key words: E-commerce, E-Success,

Introduction                                                                                                                          

The e-commerce business model recognizes the power the Internet gives customers. E-commerce has removed the obstacle of size for many small business entrepreneurs. The Internet has changed the face of business and it is important for small businesses to incorporate e-business into their strategies to remain current in the marketplace.

Online retail sales in the U.S. is consistently increasing. Figure 9.1: Online Retail Sales in the U.S. illustrates this trend with projections into 2012.                                                                              

I.       Benefits of Selling on the Web                                                                                      

The Internet has brought new customers and offered an improved competitive position for many businesses that have an online presence.

Some of the primary benefits of having a market presence on the Internet include the following:

·         The opportunity to increase revenues.

·         The ability to expand their reach into global markets.

·         The ability to remain open 24/7.

·         The capacity to use the Web’s interactive nature.

·         The power to educate and inform.

·         The ability to lower the cost of doing business.

·         The ability to spot and capitalize on new business opportunities.

·         The ability to grow faster.

·         The power to track sales results.

Today, a majority of small businesses have a presence on the Internet and this number continues to grow. Figure 9.2: World Internet Penetration by Region shows the increasing availability of the Web driving this trend.  

II. Factors to Consider before Launching into E-Commerce                                         

As with any proposed change or new venture, business owners must consider all variables and challenges they face. The Internet can transform relationships with suppliers, customers, and others. Web success requires a company to develop a plan for integrating the Internet into its overall strategy.       

The following questions may help to address these issues.                                             

·         Is the product or service conducive to e-business?

·         Can the business afford not to add e-business to its mix?

·         Will customers use the Web to buy?

·         How and where to best start a Web site?

·         What are the specific goals and objectives of the Web site?

·         What effects would a Web site have on customer relations?

·         What effects would a Web site have on channels of distribution?

·         What effects would a Web site have on financial condition of the business?

·         What other factors are worth consideration?

II.    Ten Myths of E-Commerce                                                                                           

E-commerce already has many stories of success and failure. Make sure that you do not fall victim to one of the following e-commerce myths:

Myth 1: Online customers are easy to please.                                                                 

      Web visitors and shoppers, have high expectations about their experience. Because Web shoppers are becoming more discriminating, companies are finding that they must continually improve their Web sites to attract and keep customers.

Myth 2: If I launch a site, customers will flock to it.                                                      

      Promoting the site is important and needs to become an integral part of the overall promotional strategy.

Myth 3: Making money on the Web is easy.                                                                   

      Web retailers invest 65 percent of revenue in marketing and advertising, compared to just 4 percent for their off-line counterparts.

Myth 4: Privacy is not an important issue on the Web.                                                  

      Internet users value their privacy and this concern has a negative impact on online sales.

Myth 5: The most important part of any e-commerce effort is technology.                   

      Other factors influence online buyer behavior more than technology alone.

Myth 6: “Strategy? I don’t need a strategy to sell on the Web! Just give me a Web site, and the rest will take care of itself.”

      Having a plan for the role your site will play in your business is critical to ensure it is a solid investment and that it complements and supports all other aspects of your business.

Myth 7: On the Web, customer service is not as important as it is in a traditional retail store. Refer to Figure 9.3: Reasons for Abandoning Online Shopping Carts.
                                                                                                                                   

      The customer service experience on the Web is vitally important and directly affects buyer behavior.

Myth 8: Flash makes a Web site better.                                                                          

      A simple, easy to navigate and intuitive Web site wins every time!

Myth 9: It’s what’s up front that counts.

      The site must offer value throughout.

Myth 10: It’s too late to get on the Web.

It is never too late and, as the Internet continues to evolve, additional features and technologies will make it even more attractive.

Approaches to e-commerce need to consider the short- and long-term goals of a company along with its target markets, and budgetary constraints help to define the best approach to an e-business venture. Entrepreneurs have five basic choices:

1.      Online shopping malls

2.      Storefront-building services

3.      Internet service providers and application service providers

4.      Hiring a professional to design a custom site

5.      Building a Web site in-house

IV. Strategies for E-Success

A well-designed plan for your online presence may benefit from implementing these tactics:                                           

·         Focus on a market niche.

·         Develop a community and potentially leverage Web 2.0 strategies.

·         Attract visitors by giving away “freebies.”

·         Make creative use of e-mail, but avoid becoming a “spammer.”

·         Make sure your Web site says “credibility.”

Tracking e-mail read and click-through rates is one method to assess activity on a day and weekly basis.                             

In addition, you can increase your online effectiveness when you:                                

·         Make the most of the Web’s global reach.

·         Use Web 2.0 tools   to attract and retain customers.

·         Promote your Web site online and off-line.

·         Develop an effective search engine optimization (SEO) strategy.

Search engine strategies enable visitors to find your site through:                                 

·         Natural listings — organic

·         Paid listings — sponsored

·         Paid inclusions

V.  Designing a Killer Web Site

Web users demand fast and reliable sites, have little patience, and currently buy from a relatively low number of the e-businesses that they visit. While there are no guarantees, the following suggestions may increase the chances for online success.
                                                                                                                                         

·         Understand your target customer.

·         Give customers what they want.

·         Select a domain name that is consistent with the image you want to create for your company and register it. Selecting a domain name that is short, memorable, intuitive with the company name, and easy to spell will help visitors find it.

·         Make your Web site easy to navigate.

·         Add wish list capability.                                                                                      

·         Use online videos – via guerrilla marketing as we discussed in Chapter 8

·         Create a gift idea center.

·         Build loyalty by giving online customers a reason to return to your Web site.

·         Establish hyperlinks with other businesses, preferably those selling products or services that complement yours.

·         Include an e-mail option and a telephone number in your site.                          

·         Give shoppers the ability to track their orders online.

·         Offer Web shoppers a special all their own.

·         Follow a simple design.

·         Create a fast, simple checkout process.

·         Assure customers that their online transactions are secure.                                

·         Establish reasonable shipping and handling charges and post them up front.

·         Keep your site updated.

·         Test your site often.

·         Consider hiring a professional to design your site.

VI.  Tracking Web Results                                                                                                 

Firms using Web sites must closely track the benefits of increased sales against increased costs. Web analytics are software tools that measure a site’s ability to attract customers, generate sales, and keep customers coming back. Other tracking methods include clustering, collaborative filtering, profiling systems, and artificial intelligence.

The art and science of measuring online performance and quantifying the return on investment from e-commerce activities includes:                                                                                         

·         Recency – length  of time between customers’ visits

·         Click-through rate (CTR) – proportion of people who click on a company’s online ad.  Refer to Figure 9.3: E-Mail Open and Click-Through Rates by the Day of the Week.                            

·         Cost per acquisition CPA – the amount it costs to generate a customer purchase                                      

·         Conversion (browse-to-buy) ratio – the proportion of visitors to a site who make a purchase

VII.  Ensuring Web Privacy and Security                                                                        

The Web’s ability to track the behavior of its customers raises concerns and issues over the privacy of that information. Companies are encouraged to take the following steps to ensure that they use information they collect in a legal and ethical manner:

·         Take an inventory of the customer data collected.

·         Develop a company privacy policy for the information you collect.

·         Post your company’s privacy policy prominently on your site and follow it!

Security is another unresolved and developing Web site issue. Hackers, viruses, credit card fraud, and unauthorized users continue to have a negative affect companies, customers, and the growth of e-commerce. Virus and intrusion detection software and firewalls may help to ward off attacks from hackers.        

Section III.      Building the Business Plan:
Marketing and Financial Considerations

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Chapter 10     Pricing Strategies

Key words: Market Penetration, Skimming, Life Cycle Pricing, Absorption costing, Variable (direct) costing

Introduction                                                                                                                          

Setting prices is a business decision that is both an art and a science. The process requires entrepreneurs to balance a multitude of complex forces to determine the prices for their goods and services that will draw customers and produce a profit.

I.    Three Potent Forces: Image, Competition, and Value                                                

      Setting prices for products and services is complex and difficult. A number of factors are important to carefully consider. Price conveys an image that must match the company’s target markets. It is an art and a science.

      Pricing communicates a powerful message about the organization’s image.                   

      The firm must also consider its place among the competition and that does not mean they have to match or beat competitor’s prices—it is about value.                                                                      

      This focus on value will set the “right” price based upon objective value and perceived value.                                            

      Costs impact pricing. It is important that price takes cost into consideration. These costs should be passed along to customers and communicated through the value you offer.
                                                                                                                                         

      When all is taken into consideration, the factors that small business owners must consider when determining price for goods and services includes:                                                                              

·         Product/service costs

·         Market factors - supply and demand

·         Sales volume

·         Competitors' prices

·         The company's competitive advantage

·         Economic conditions

·         Business location

·         Seasonal fluctuations

·         Psychological factors

·         Credit terms and purchase discounts

·         Customers' price sensitivity

·         Desired image

      What determines price? The acceptable price range falls between the price floor (company costs) and the price ceiling (based on what the market will bear.) Refer to Figure 10.1: What Determines Price?         

      Customized or dynamic pricing is a technique that sets different prices based on the customer and their characteristics. For example, Dell Computer uses this technique as people order systems online and more is learned about who they are and what they are willing to pay.                                                                              

II.  Pricing Strategies and Tactics                                                                                       

      When introducing a new product, the owner should try to satisfy three objectives:

            1.   Getting the product accepted

            2.   Maintaining market share as competition grows

            3.   Earning a profit

      When introducing a new product, firms may choose from three basic strategies:
                                                                                                                                         

1.   Market Penetration: Set prices below competitors to gain market entry. This pricing strategy grows market share and makes it less attractive for new competitors to enter the market.

2.   Skimming: Set higher prices for new products and for markets with little or no competition. This pricing strategy offers the optimal margin with higher price points. 

3.   Life Cycle Pricing: Set higher prices initially and, as technological advances or additional experience enables the firm to lower costs, it can reduce the product’s price one step ahead of competitors.

      Pricing established goods and services offers the following techniques:                          

·         Odd pricing

·         Price lining

·         Leader pricing

·         Geographical pricing

·         Opportunistic pricing

·         Discounts

·         Multiple unit pricing

·         Suggested retail prices

III.   Pricing Strategies and Methods for Retailers                                                            

      Retailers have changed their pricing strategies to emphasize the value they offer. This value/price relationship allows for a wide variety of highly creative pricing and marketing practices.

Four of those value/price relationship practices are:

            1.   Markup

            2.   Follow-the-leader pricing

            3.   Below-market pricing

            4.   Adjustable or dynamic pricing

IV. Pricing Concepts for Manufacturers                                                                            

      Cost-plus pricing is the most commonly used pricing technique for manufactures. The breakeven point is calculated based on the variable costs and the quantity produced as it compares to the total fixed costs.

      Direct costing and price formulation is based upon:

Absorption costing: All manufacturing and overhead costs are absorbed into the finished product's total cost.

Variable (direct) costing: The costs of the product include only those costs that vary directly with the quantity produced.

V.  Pricing Strategies and Methods for Service Firms

      Most service firms set prices based on hourly rates and materials that include a margin for both overhead and profit.

VI. The Impact of Credit on Pricing

Consumer credit has a dramatic impact on pricing and on the attractiveness of the business. This includes credit cards, installment credit, and trade credit. It is important to recognize the value that credit offers a company, and equally important to take steps to protect it.                                                                              

Chapter 11     Creating a Successful Financial Plan

Key words: Financial Statements, balance sheet, income statement, statement of cash flows, Current ratio, Quick ratio, Debt ratio, breakeven point

Introduction                                                                                                                          

      A well-designed and logical financial plan is one of the most important steps to launching a new business venture and therefore a critical aspect of a comprehensive business plan. This chapter focuses on practical tools that will help entrepreneurs develop a workable financial plan and enable them to plan to be profitable. We will discuss the techniques involved in preparing projected (pro forma) financial statements, conducting ratio analysis, and performing breakeven analysis.

I.    Basic Financial Statements                                                                                            

      There are four common financial challenges facing entrepreneurs:

1.      Failing to collect and analyze basic financial data

2.      Lack of any kind of financial plan

3.      Ongoing analysis of financial statements

4.      Financial planning is essential!

      Three important financial statements assist entrepreneurs to assess the financial status of their business:

1.      The balance sheet takes a “snapshot” of a business at a given date, providing owners with an estimate of its value in terms of assets, liabilities, and equity.

2.      The income statement is also called a profit and loss (P&L) statement and compares expenses against revenues for a certain period of time to indicate profits or losses.

3.      The statement of cash flows shows the actual flow of cash into and out of a business for a certain time period.

II.  Creating Projected Financial Statements                                                                     

      Entrepreneurs must determine the funds needed for starting and sustaining a business for the initial growth period. Typically, the entrepreneur relies on data collection through extensive market and field research and on published statistics summarizing the performance of similar companies.

      By developing pro forma statements, statements projecting future financial activity, the owner transforms goals into reality by estimating the profitability and overall financial condition of the business for the initial one- to three-year period.

      A general guideline to assist with this process of developing pro forma statements is to start with the sales forecast and work down.

·         The pro forma income statement begins with the sales forecast and estimates the corresponding expenses required to generate those sales dollars. Banks typically require two- to three-year projections.

·         The pro forma balance sheet starts with the beginning balances of cash, inventories, assets, and liabilities. Banks typically require a year-one and year-two balance sheet projection.

·         The proforma cash flow statement charts cash flow, typically by month, for the first two years of operation. It is often one of the major criteria for lending decisions by creditors.

III.  Ratio analysis                                                                                                                

      Ratio Analysis expresses the relationship between two selected accounting elements and is one technique used in conducting a financial analysis.

      The 12 key ratios include:

      Liquidity ratios indicate whether the business will be able to meet its short-term financial obligations as they come due.

                  1.   Current ratio – measures solvency through the relationship between current assets and current liabilities.  

                  2.   Quick ratio – focuses even more on liquidity by removing inventory from the current ratio calculation.     

Leverage ratios measure the relationships between financing supplied by a firm’s owners and by its creditors.        

3.      Debt ratio – measures total debt against total assets – the extent or percentage of total assets owned by creditors    

4.      Debt-to-net-worth ratio – indicates the degree of leveraging by measuring capital contributions from creditors against those by the owners (debt to equity).                                                            

5.   Times interest earned ratio – a measure of the firm's ability to make the interest payments on its debt.    

6.   Average inventory-turnover ratio – measures the average number of times inventory is “turned over” during the year.                                                                       

7.   Average collection period ratio – measures the average number of days it takes to collect receivables.     

8.      Average payable period ratio – indicates the average number of days it takes a company to pay its accounts payable.  

9.      Net sales to total assets ratio – the measure of a firm's ability to generate sales in relation to its assets. 

10.  Net sales to working capital ratio – measures the sales that a business generates for every dollar of working capital.                                                                              

11.  Net profit on sales ratio – measures a firm's profit per dollar of sales.
                                                                                                                       

12.  Net profit to equity ratio – measures an owner's rate of return on investment.                                

IV.  Interpreting Business Ratios                                                                                       

      Ratios are useful yardsticks when measuring a small firm's performance and can point out potential problems before they develop into a crisis.

      Comparison of a firm's ratios to businesses within the same industry is a useful tool. A firm can also develop ratios unique to its operation. Several organizations compile and publish operating statistics including key ratios. This information may be found in the following sources:

1.       Robert Morris Associates

2.       Dun & Bradstreet, Inc.

3.    Vest Pocket Guide to Financial Ratios

4.    Industry Spotlight

5.    Bank of America

6.    Trade associations

7.    Government agencies

      Analyzing ratio trends can offer invaluable insight for managing the business. Figure 11.7: Trend Analysis of Ratios presents and example of this.                                                                           

      Applying these ratios to Sam’s Appliance Shop illustrates the insight rations can offer.

1.      Current ratio                                                                                                         

2.      Quick ratio                                                                                                           

3.      Deb ratio                                                                                                              

4.      Debt to net worth ratio                                                                                         

5.      Times interest earned ratio                                                                                  

6.      Average inventory turnover ratio                                                                        

7.      Average collection period ratio                                                                           

8.      Average payable period ratio                                                                               

9.      Nest sales to total assets ratio                                                                              

10.  Net profit on sales ratio                                                                                       

11.  Net profit to assets ratio                                                                                       

12.  Net profit on equity ratio                                                                                     

V.  Breakeven Analysis                                                                                                       

      The breakeven point is the level of production and sales volume at which a company’s revenues equal its expenses, resulting in a net income of zero.

      First, determine the variable and fixed expenses.                                                           

            1.   Fixed expenses–costs that do not vary with changes in the volume of sales or production.

            2.   Variable expenses–costs that vary directly with changes in the volume of sales or production.

      Next, follow these steps to calculate the breakeven point:                                              

            Step 1: Determine the expenses a business can expect to incur.

            Step 2: Categorize those expenses as fixed or variable.

            Step 3: Calculate the percentage of variable expenses to net sales.

      Determine the percentage of contribution margin to sales.

            Step 4: Compute the breakeven point.

                  Include desired net income into the breakeven analysis calculations.

                  Calculate the breakeven point and desired profit in both units and dollars.

      The breakeven chart, Figure 11.5 Break-Even Chart for the Magic Shop, illustrates the correlation with fixed and variable costs and revenues.                                                                            

Chapter 12     Managing Cash Flow

Key words: Cash Management, Cash flow cycle, Profit, Cash flow, Cash Budget

Introduction                                                                                                                          

      “Everything is about cash,” says entrepreneur and venture capitalist Guy Kawasaki, “raising it, conserving it, collecting it.” The phrase “cash is king” is familiar to entrepreneurs and, once a business is launched, managing cash flow becomes a central focus, and potentially, a significant problem.

I.    Cash Management                                                                                                         

      Cash is the most important, yet least productive, asset that a small business owns. Businesses must have enough cash to meet their obligations or run the risk of declaring bankruptcy. It is entirely possible for a business to earn a profit and still go out of business by running out of cash.

      Small and growing companies are like “sponges,” soaking up every available dollar to fund growth and sales.       The first step in managing cash more effectively is to understand the company’s cash flow cycle.   

      There are several ways entrepreneurs can improve their cash flow. This includes being more aggressive with collectables, increasing prices, offering customers early discounts, take advantage of vendors’ payment terms, and charging purchases to credit cards.
                                                                                                                                        

      Cash flow cycle is the time lag between paying suppliers for merchandise or materials and receiving payment from customers for the product or service. Business owners should calculate their cash conversion cycle whenever they prepare their financial statements. On a daily basis, business owners should generate reports showing the following: total cash on hand, bank balances, “summary of day” sales, “summary of the day” cash receipts, and a summary of accounts receivables collections.                                 

      The entrepreneur has five roles they take on to manage cash flow:                                

1.      The role of the cash “Finder”

2.      The role of the cash “Planner”

3.      The role of the cash “Distributor”

4.      The role of the cash “Collector”

5.      The role of the cash “Conserver”

The next step in effective cash management is to shorten the length of the cash flow cycle. Receiving your cash sooner—rather than later—has a positive impact on your cash flow.

As an essential business resource, cash is used, or depleted, to purchase goods and materials and pay for labor to create products for inventory. When these products are sold, this is turned back into cash or accounting receivables and the inventory can be replaced as profits are generated.

II.  Cash and Profits                                                                                                             

      Cash and profits are not the same.

      Profit (or net income) is the difference between a company's total revenues and total expenses. It measures how efficiently the business is operating.

      Cash flow measures a company's liquidity and its ability to pay its bills and other financial obligations on time by tracking the flow of cash into and out of the business over a period of time. Profitability does not guarantee liquidity. Cash is the money that flows through a business in a continuous cycle without being tied up in any other asset.
                                                                                                                                         

II.  The Cash Budget                                                                                                            

      The need for a cash budget arises because the uneven flow of cash in a business cycle creates surpluses and shortages. A cash budget is based on the cash method of accounting. Credit sales to customers are not recorded until the customer actually pays, and purchases made on credit are not recorded until the owner pays them. Depreciation, bad debt expense, and other noncash items that do not involve cash transfers are omitted entirely from the cash budget. A cash budget is nothing more than a “cash map.” The cash budget shows the amount and timing of cash receipts and cash disbursements day by day, week by week, or month by month and is used to predict the amount of cash the firm will need to operate smoothly over a specific period of time.

III.   Preparing a Cash Budget                                                                                             

      Five basic steps to preparing a cash budget include:

1.   Determining an adequate minimum cash balance – The most reliable method is based on past experience. For example, past operating records may indicate that it is desirable to maintain a cash balance equal to five days’ sales. Determining a minimum cash balance is also important. A range of cash balances gives you an insight to know the amount of cash that is acceptable, enough to get you through time of need, but not too much to have “lazy cash” that is not effectively working for your business.   

2.   Forecasting sales – Sales forecasts are the heart of the cash budget and are based partially on past patterns. Financial analysts suggest creating three estimates—optimistic, pessimistic, and most likely.      

3.   Forecasting cash receipts – The budget must account for the delay between the sale and the actual collection of the proceeds. It is vital to act promptly once an account becomes past due. Collecting delinquent accounts is critical to keep cash flow moving in a positive direction and can be a challenging task for the entrepreneur.                                                                                                              

4.   Forecasting cash disbursements – Many cash payments are fixed amounts due on specified dates. Others are standard like the purchase of inventory, salary and wages, overhead, selling expenses, and so on. Financial analysts suggest that new owners add an additional 10 to 25 percent to estimate disbursement totals as a cushion. Forecasting cash disbursements can become more meaningful through:                                                                                                                

·         Recording disbursements.

·         Noting their due dates.

·         Reviewing the checkbook and expenses.

·         Adding a cushion to those estimates.

Making a daily list of items that generate and consume cash.

5.   Determining the end-of-month cash balance – The cash balance at the end of the month becomes the beginning balance for the following month. Estimating the end-of-the-month balance will give you insight and may help to avoid a shortage or identify a cash surplus. Anticipating cash shortages and surpluses; this can reduce lending expenses and time.                                          

      Benefits of Cash Management

      The most significant benefits of effective cash management include:
                                                                                                                                         

·         Increasing the amount of cash and the speed of cash flow into the company

·         Reducing the amount of cash flow leaving the company

·         Making the most efficient use of available cash

·         Taking advantage of money-saving opportunities such as cash discounts

·         Finance seasonal business needs

·         Developing a sound borrowing and repayment program                                      

·         Impressing lenders and investors

·         Reducing borrowing costs by only doing when needed

·         Providing funds for expenses

·         Planning for investing surplus cash

IV.  The “Big Three” of Cash Management                                                                        

There are three essential factors for the effective management of cash flow:

1.      Accounts receivable – Extending credit to customers
A firm should always try to accelerate the collection of its receivables. If possible, a firm should also work to reduce or even eliminate credit sales.

2.      Accounts payable – Suppliers and others extend credit to you
Take advantage of extending accounts payable and never abuse those opportunities.

3.      Inventory – The largest expense for retail and manufacturing businesses
Product-based businesses need to monitor, manage, and control their inventory on a continual basis.

      Accounts receivable is a critical area for the entrepreneur to address. Establishing a credit and collection policy and process is essential. This will provide clear and consistent direction for you, your employees, and your customers. Figure 12.5: Cash Flow Concerns, lists the primary concerns small businesses face.

      To beat the cash crisis, steps to controlling accounts receivable include:                         

·         Establishing a credit and collection policy include:

·         Screen customers carefully by developing a detailed credit application. Know when to walk away from an order—why make the sale if you won’t get paid?

·         Establish a written credit policy and let every customer know the company's credit terms in advance.

·         Send invoices promptly (cycle billing).

·         Take immediate actions when an account becomes overdue.

Steps to accelerate the collection of accounts receivable through encouraging the prompt payment of invoices include:    

·         Ask customer to fax or e-mail orders.

·         Send invoice when goods are shipped.

·         Highlight the due date on invoices.

·         Restrict customers’ credit until past-due bills are paid.

·         Deposit checks and credit card receipts daily.

·         Identify the top 20% of your customers and monitor them closely.

·         Ask customers for up-front payments.

·         Watch for signs that a customer may be about to declare bankruptcy.

·         Consider using a lockbox service.

·         Track the results of your company’s collection efforts.

Few owners use any formal method for managing inventory. Entrepreneurs may find that they have either too much inventory, or the wrong type of inventory that has become outdated or obsolete. This inventory ties up cash and is expensive to the firm. A typical manufacturing company pays 25-30 percent of the value of its inventory in handling and finance costs; however, retailers that carry too little inventory experience stockouts and lost sales.

      Entrepreneurs can also take steps to avoid a cash crisis through an effective management of accounts payable. Tips to accomplish this include:                                                                                       

·         Stretching out payment times without jeopardizing credit

·         Verify all invoices before payment

·         Take advantage of cash discounts                                                                        

·         Negotiate terms with suppliers                                                                             

·         Communicate with creditors about your status

·         Schedule and stagger cash disbursements

·         Use credit cards wisely

      Inventory management also plays an important cash management role:                          

·         Monitoring it closely; inventory can drain a company cash.

·         Avoid inventory overbuying – it ties up valuable cash with no return.

·         Arrange for inventory deliveries a the latest possible date.

·         Negotiating quantity discounts with suppliers when possible.

V.  Avoiding the Cash Crunch                                                                                            

      Tools that allow small business managers to get the maximum benefit from their companies' pool of cash include:

      Bartering: The exchange of goods and services for other goods and services rather than for cash is an effective way to conserve cash.

      Trimming overhead costs: High overhead expenses can strain a small firm's cash supply. Ways to trim overhead costs include:

1.      Ask for discounts and “freebees”

2.      Periodically evaluate expenses

3.      When practical, lease instead of buy

3.   Avoid nonessential cash outlays – timing is everything!

4.      Negotiate fixed loan payments to coincide with your company's cash flow cycle

5.   Buy used or reconditioned equipment, especially if it is “behind-the-scenes” machinery                  

6.   Hire part-time employees and freelance specialists whenever possible

7.   Control employee advances and loans

8.   Establish an internal security and control system

9.   Develop a system to battle check fraud

10. Change your shipping terms

11.  Switch to zero-based budgeting

      Additional ways to control cash flow include making efforts to:                                     

·         Start selling gift cards.

·         Switch to zero-based budgeting.

·         Be on the lookout for employee theft.

·         Keep your business plan current.

·         Invest surplus cash to generate revenue.