A lot of words get thrown around talking about small businesses. Cash flow and profit may seem similar, but they're different. Here's more info....

A lot of words get thrown around talking about small businesses. Cash flow and profit may seem similar, but they’re different. Our content partner Nav.com has answers!

 

 

According to a Quickbooks report from earlier this year, “61% of small businesses regularly struggle with cash flow”. 

Even if your business is profitable, you can be at risk of falling into financial demise. How? Because if you don’t have enough liquid cash on hand to meet the myriad of current and near-term expenses that come with owning a small business, it can nearly impossible to keep your operation afloat. 

 

What is cash flow?

Cash flow is essentially the cycle of funds going in and out of your business from operations, investing, and financing activities. It’s the amount of liquid cash that you have at your disposal at a given time. Your business can either be cash flow positive, or cash flow negative.  

Positive cash flow is when cash inflows are greater than your cash outflows. 

Negative cash flow is when your cash outflows are greater than your cash inflows. 

Examples of cash inflows are money coming in from accounts receivable, the sales of services and products, and borrowed capital like lines of credit or term loans

Examples of cash outflows are money going out for accounts payable, payroll, taxes, rent, loan payments, and other expenses.

If you decided to borrow $75,000 to cover  equipment financing, the lump sum of capital you receive upfront would be considered cash inflows, and your payments on the loan would be considered cash outflows. 

 

What is profit?

Profit (also known as “net profit” or “net income”) is the amount of money that remains after all expenses — including costs of goods sold (COGS), as well as operating costs, interest payments, loan payments, and taxes — are deducted from your revenue. 

To figure out your total profitability, you need to understand both gross profit and net profit.

Let’s say you own a flower shop. You bring in $25,000 of revenue in April, but your COGS (i.e. wholesale flowers) amount to $10,000. Your gross profit would be $15,000. 

Revenue – Cost of Goods Sold (COGS) = Gross Profit 

$25,000 – $10,000 = $15,000

Your gross profit is what you make from selling flowers, but it does not account for all the other operating expenses that are involved in running your flower shop, such as the cost of rent, electricity, payroll and advertising. Factoring in your operating expenses, your net profit for April would be $10,000. 

Gross Profit – Operating Expenses = Net Income 

$15,000 – $5,000 = $10,000

While profitability provides you with a snapshot of your financial situation during a specific accounting period, it fails to account for the day-to-day stability of your operation. 

 

What’s the difference?

While being cash flow positive and profitable may seem pretty much the same at first glance, there’s a significant difference that is important to understand.

To operate, you need cash on hand to meet payroll, make rent and insurance payments, and handle the laundry list of other day-to-day expenses to keep business running as usual. 

Many businesses use the accrual method of accounting, which records income and expenses when you earn or incur them — regardless of whether the cash has actually been exchanged. 

If you’re sending out invoices to clients that may not be paid for 30, 60, 90 or even 120 days, your real-time cash flow situation will look very different than your profitability — and you may find yourself without enough liquidity to keep your business running. 

Let’s use a single invoice to illustrate this point. You land a huge opportunity with a wedding planner, who needs $15,000 worth of arrangements for an upcoming wedding. You invoice the customer on May 1 with a deadline of 60 days. You also have to pay your vendor $8,000 for the supplies (flowers) within the next 30 days.

Without factoring in your operating expenses for this transaction, your next income for May would look like $7,000 — not bad at all!

But this fails to give you a clear picture of your cash flow. That’s where the cash basis of accounting comes in. While used less commonly, it is important for gauging how much cash you actually have on hand, as revenue and expenses aren’t actually recorded until the money is exchanged. With terms of NET60, you wouldn’t actually receive the money until July 1. See below: 

This is a simplified example with a single invoice. If you’re sending out multiple invoices with different payment terms and managing the day-to-day operational expenses, you can see how staying out of the red could get tricky. 

That’s why it’s so crucial to not only understand the difference between cash flow and profit, but figure out better ways to increase your cash flow.  

 

This article originally appeared on Nav.com and was re-purposed with their permission.

 

For information about Opportunity Fund’s small business loans, please contact us at 866-299-8173 or loans@opportunityfund.org.  For questions about your existing loan or other customer service questions, please contact us at 866-299-8173 or sbhelp@opportunityfund.org.

Loans are subject to credit review. Additional documentation may be required for credit approval. Loans will be made or arranged pursuant to California Department of Corporations Finance Lenders License #6050609.

Opportunity Fund, the nation’s leading nonprofit small business lender, believes small dollar loans help hard-working entrepreneurs make lasting change in their own lives and build stronger communities by growing businesses and creating jobs. Opportunity Fund’s community of donors and investors is creating an inclusive financial system that empowers women, immigrant, and minority small business owners. Our strategy combines microloans for small business owners and New Markets Tax Credit investments in high-impact community infrastructure projects. Since 1994, Opportunity Fund has deployed more than $750 million and helped thousands of entrepreneurs invest in their families’ futures. The organization has committed to lending an additional $1.2 billion to small business owners across the country and investing $174 million in community real estate projects by 2023.

Visit us online at http://opportunityfundloan.org and follow us on Facebook and Twitter

Small business owners are a busy bunch. Some things may fall through the cracks, including payments. Here's how to handle past due debt....

Small business owners are a busy bunch. Some things may fall through the cracks, including payments. If you’re looking for guidance on how to handle past due debt, our content partner Nav.com has answers!

 

It goes without saying that small business owners are experts at multitasking. If you own a small business, chances are you’re juggling a million different things on a daily basis — shift schedules, inventory management, and likely, a multitude of different expenses, from electricity bills to insurance payments.

With so much to do and manage, it’s possible that you may have forgotten about a credit card bill, missed a loan payment, or let an invoice slip through the cracks. While this may not seem like a big deal, and it certainly isn’t the end of the world if your payments are  a few days behind, a past due debt can come back to haunt you when you’re applying for business funding.

If you find yourself falling behind on payments, don’t fret just yet. Here’s what you need to know about past due debts, plus some steps you can take to resolve them so you can get back to what’s most important — growing your small business.

 

What is past due debt?  

A debt becomes “past due” if you fail to make a payment as of the due date. The “past due” amount is the balance that was owed on the original due date.

For example, let’s say you have a small business credit card that you use to purchase inventory. The holidays are right around the corner so you  decide to stock up on additional supply to meet the surge in demand. You owe a balance of $10,000 with a minimum payment of $300 due on the 15th. You’re planning on paying it off in full once you’ve sold all of your holiday inventory and you have more cash on hand. But with things so busy, you completely forget to pay the minimum, which means during the next payment period, your minimum payment will include:

  • Past due minimum payment of of $300
  • Any late fees or penalties

While this may seem like a small number, it can quickly balloon out of control with the addition of late fees, penalties, and in some cases, an increase in interest rate. And if you’ve missed a loan payment or fail to make good on an invoice, you’re likely looking at an even more daunting number.

 

How does a past due debt affect your credit score (and your chances of getting a loan)?

Most of the time, it comes down to how far behind you are on a payment and the type of debt. If you’re a few days late on paying your credit card bill, you’ll most likely just face a late fee; however, once your bill becomes 30 days past due, your creditor will likely report you to the credit bureaus. And once you’re 60 days past due on your debt, your creditor may even increase the interest rate, which can make paying off what you owe even more overwhelming.

This is where your credit score is at risk, and potentially, your chances of being approved for a small business loan.

Credit bureaus collect information about customer credit data, both personal and business, and lenders use these numbers to evaluate how risky you are as a borrower. While each credit bureau  has its own criteria and method of scoring, a combination of the amount of available credit you use, the length of your credit history, the types of credit you use, and your payment history, among other factors, all play a role.

In fact, when it comes to your FICO (Fair Isaac Corporation) score, which is arguably the most popular scoring system in the United States for personal credit, your payment history is the biggest factor — accounting for approximately 35% of the formula. And for many types of small business financing, your personal credit score can make or break your chances of getting approved — especially for younger businesses without an established business credit score.

 

How to resolve past due debts

Have a lingering past due debt? Here’s a few ways you can go about handling them:

  • Make the past due payment: This may be an obvious option, but it’s also the most straightforward approach to get rid of a past due debt that is looming over your head.
  • Negotiate a payment plan with your creditor: Due to late fees and interest charges, you might find yourself in a situation with an ever-increasing balance that you just can’t seem to shake off. In some cases, your creditor may be willing to set up a payment plan so you can gradually pay off what you owe.
  • Consolidate your business debts: With business debt consolidation, you can combine multiple business debts, including those that may be carrying a past due balance, into one single, streamlined payment. By paying off your past due debt, you can avoid continuing to pay penalties or increased interest charges.

 

 

This article originally appeared on Nav.com and was re-purposed with their permission.

 

For information about Opportunity Fund’s small business loans, please contact us at 866-299-8173 or loans@opportunityfund.org.  For questions about your existing loan or other customer service questions, please contact us at 866-299-8173 or sbhelp@opportunityfund.org.

Loans are subject to credit review. Additional documentation may be required for credit approval. Loans will be made or arranged pursuant to California Department of Corporations Finance Lenders License #6050609.

Opportunity Fund, the nation’s leading nonprofit small business lender, believes small dollar loans help hard-working entrepreneurs make lasting change in their own lives and build stronger communities by growing businesses and creating jobs. Opportunity Fund’s community of donors and investors is creating an inclusive financial system that empowers women, immigrant, and minority small business owners. Our strategy combines microloans for small business owners and New Markets Tax Credit investments in high-impact community infrastructure projects. Since 1994, Opportunity Fund has deployed more than $750 million and helped thousands of entrepreneurs invest in their families’ futures. The organization has committed to lending an additional $1.2 billion to small business owners across the country and investing $174 million in community real estate projects by 2023.

Visit us online at http://opportunityfundloan.org and follow us on Facebook and Twitter

Each month, we promote affordable events that help small business owners run their businesses better. This is your monthly calendar for in-person events in California and virtual events you can join from anywhere. Here are the best upcoming events in July.

Each month, we promote  affordable events that help small business owners run their businesses better. This is your monthly calendar for in-person events in California and virtual events you can join from anywhere. Here are the best upcoming events in July.

Northern California/Sacramento

Personal Financial Planning for Women
Date: July 11, 2019 | 6:00 PM – 8:30 PM PDT
Location: 50 California St. Floor 10, San Francisco, CA 94111 
Contact: info@ellevatenetwork.com
Organization: Ellevate
Fee: $20.80

Please join us for an exciting event on personal financial planning with Diane Bourdo, President of The Humphreys Group.

Click here to register for this event. 

Taxation, Deductions & Compliance for Corporations
Date: July 10, 2019 | 9:30 AM – 12:30 PM PDT
Location:  1792 Tribute Rd. Suite 270, Sacramento CA
Contact: (916) 442-1729
Organization: California Capital
Fee: Free

Learn how to properly form and maintain a Corporation

Some areas to be covered:

  • Reasons to operate your business as a corporation.
  • What MUST be done to get corporation benefits.
  • Legal standing, alter ego—lost tax benefits, lost asset protection
  • The legal structure of corporations.
  • Taxation of corporations, LLC corps and subchapter S elections.
  • Out-of-state corporations, California and nexus tax issues.
  • Tax deductions for corporations—recordkeeping, reporting, compliance.
  • Corporation-owned and personally-owned vehicles—tax treatment and reporting.
  • Fringe benefits for working owners.
  • Accountable reimbursement plans and eligibility.

Click here to register for this event. 

Converting Prospects To Customers
Date: July 11, 2019 | 9:00am to 12:00pm PDT
Location: 500 Chadbourne Road. Fairfield, CA 94534

Contact: (707) 826-3919
Organization: SBDC Northern California
Fee: Free

This workshop is a basic training program on Sales.  It will reacquaint experienced sales people with the many elements of the selling process and teach NEW sales people the skills needed to find prospects and turn them into customers.

Many startup businesses have excellent products and/or services and there is a strong demand for them in the marketplace.  That said, far too many of these new businesses do not achieve their full potential due simply to the inability of their owners and their staff to make effective sales calls.  This workshop will help you and your team have an effective “face to face” sales strategy that will generate new business.
Click here to register for this event. 

 

Southern California/San Diego

Fed/State Basic Payroll Tax
Date: July 17, 2019 | 9:00 am – 12:00 pm PDT
Location:  13430 Hawthorne Blvd. Hawthorne, CA
Contact: (310) 225-8277
OrganizationLos Angeles SBDC
Fee: Free

In this workshop you will learn:

  • California payroll reporting requirements, including forms, employer obligations, reporting, and payment requirements.
  • About independent contractor reporting requirements.
  • Electronic filing and payment requirements and options.
  • Federal payroll reporting requirements, including Forms 940, 941, 1099, W-2, W-4, W-9, and alternative filing.

Click here to register for this event.

Increase Your Cash Flow
Date: July 20, 2019 | 10:00 AM to 12:00 PM  PDT
Location: 1003 East Cooley Drive. Suite 109 Colton, CA
Contact: (909) 890-1242
Organization: Inland Empire Women’s Business Center
Fee: Free

Understanding the power of mastering your cash flow can be the difference between having a successful business and having a business on the verge of failing. Become more informed about tax advantages that small business owners qualify for and the two main ways to increase cash flow.

Click here to register for this event.

Financial Projections
Date: July 16, 2019 | 5:30 pm – 7:30 pm PDT
Location: 5121 Van Nuys Blvd., Suite 300A Sherman Oaks, CA
Contact: info@vedc.org | 818-907-9922
Organization: VEDC Women’s Business Center
Fee: Free

This course will discuss: the importance of record keeping, assumptions for the projection, financial statements (including income statements, balance sheets, and cash flow statements), spreadsheets, and tips for success. Find out how understanding these forms can help you manage your business more efficiently.

Click here to register for this event.

 

Virtual

Business Basics: Business Plans, Pitch Decks and the Mission, Vision, and Values Statements
Date: July 11, 2019 | 12:00 pm – 1:00 pm MDT
Location: Online—Webinar
Contact: Lora Nelson | lora.nelson@canyons.edu | (661) 362-5900
Organization: SBDC hosted by College of the Canyons
Fee: Free

In this free webinar you will learn about the Mission, Vision, and Values Statement, and how to create them. The session will also cover what is a Business Plan vs. a Pitch Deck, the differences between them and the essential components that both address in creating or expanding a new business.

Click here to register for this event.

Solid Steps to Increase Your Visibility
Date: July 17, 2019 | 12:00 pm – 1:00 pm PDT
Location: Online—Webinar
Contact: 530.926.6670
Organization: Jefferson Economic Development Institute
Fee: Free

Are you wondering how to gain more visibility for your work or your business? How do you attract more of your ideal customers? Do you have a solid base of customers and are ready to move to the next level?

Sarah will teach you to develop lasting powerful relationships in your industry. She will share 4 simple steps that anyone can use to increase their impact on their network.

Participants will learn how to:

  • Develop lasting relationships in your industry.
  • Create a simple plan you can implement to start having more impact on your network.
  • Develop allies, effectively network on digital platforms, foster strong 1:1 relationships, and precisely how to follow up.
  • Identify the steps to develop a system for media outreach

This webinar is great for start-ups and those new to small business and also an excellent review and kick-start for established businesses.

Click here to register for this event. 

 

We’re looking for upcoming events to promote to small business owners like you. If you have an event you’d like to share with fellow business owners, contact us at sblending@opportunityfund.org.

For information about Opportunity Fund’s small business loans, please contact us at 866-299-8173 or loans@opportunityfund.org.  For questions about your existing loan or other customer service questions, please contact us at 866-299-8173 or sbhelp@opportunityfund.org.

Loans are subject to credit review. Additional documentation may be required for credit approval. We are an Equal Opportunity Lender. Loans will be made or arranged pursuant to California Department of Corporations Finance Lenders License #6050609.

 

Opportunity Fund is tackling economic inequality so that hard work and perseverance means a shot at getting ahead, not just struggling to get by. Our programs are supported by a community of donors and investors whose contributions help to fund small businesses and build stronger families and vibrant neighborhoods. Since 1994, the team has deployed $700 million and helped thousands of families invest in their own futures. Opportunity Fund has earned a 4-star rating from Charity Navigator, America’s largest independent charity evaluator, for our commitment to accountability and transparency.

Visit us online at opportunityfundloan.org and follow us on Facebook and Twitter

Opportunity Fund. Working Capital for Working People. opportunityfund.org