When going gets tough, tough get flowing

Publication: Boulder County Business Report
November 25, 2009
By Katie DiDonato

In tough economic times some small businesses are learning to be more creative with their cash-flow management.

Poor cash management is one of the top three reasons small businesses fail, according to Chris Chavez, spokesman for the Colorado Small Business Administration.

Chavez said most businesses fail either due to lack of planning, poor management or insufficient capital.

“It’s still tough times,” Chavez said, noting that small businesses are having a hard time accessing capital because banks are hesitant to lend money. At the same time, small businesses aren’t seeing as many customers coming through the doors as they projected, he said.

Now more than ever, companies must be diligently scrutinizing their cash flow.

Experts agree there are various ways for businesses to make every cent count.

Plan ahead

Chavez said many small-business owners calculate basic expenses, but forget to put together a detailed business plan accounting for every potential cost from the water bill to snow removal.

“They don’t want to go through the pre-work that it takes to adequately plan a business,” he said.

Business owners must also plan ahead for changes in the economy.

Broomfield small-business owner Wade Keller, chief operating officer of KG Clean Inc., a commercial cleaning company, said he started planning before “the storm hit the shores.

“I started making adjustments long before my customers started cutting back,” he said. Keller approached his customers first and offered money-saving solutions before they could shop around. He also ramped up sales with the knowledge that many potential clients would be looking for a better price.

Small-business owners need to be realistic in their first year as they start to generate cash flow, Keller said. He and his business partner, Debbie Garay, started KG Clean Inc. 14 years ago with $10,000.

“We both worked days and cleaned at night for as long as we could to build capital,” he said.

Chavez said anyone planning to start a small business right now needs to have a strong business plan in place – now more than ever.

“It’s difficult to start a small business during good times. It’s even more difficult to start during economic bad times,” he said.

Get paid ASAP

Small business owners are also thinking of other ways to get paid, according to CPA Jim Marty, owner of Jim Marty & Associates in Longmont.

“It’s been difficult to manage income in this environment,” Marty said.

He suggests clients work to get paid as fast as possible. One way to get paid quickly is to accept credit cards and keep that information on file.

Many professional services businesses are now accepting credit payments, Marty said. By accepting credit, Marty said companies aren’t surprised by a longtime client that suddenly can’t make a payment. Companies can also take retainers.

Keller said he changed his billing to the beginning of the service period to cover monthly reoccurring bills. He also pays his account managers commission and profit sharing to give them an incentive to get billing in immediately.

“Small businesses also need to review their accounts receivable policy. If accounts aren’t paid on time,” Marty said. “Companies need a good collection agency or attorney to help gather payments.”

Work with tax adviser

Dan Kielek, tax partner with Clifton Gunderson in Broomfield, said companies can still make changes before the end of the year that will generate more cash for their business.

Potential tax law changes could help companies as they plan purchases this year or decide to wait on buying until 2010.

Many companies aren’t planning for how changes in tax law will affect their business, Kielek said.

“There are maneuvers you can make especially toward the end of the year,” he said.

Kielek said he’s seeing businesses cut costs so that they are “absolutely on the razor’s edge,” but they also need to think about the benefits of certain costs. Working with a tax adviser to analyze all opportunities in the tax laws can help a small business find added cash, he said.

Although KG Clean has seen a 10 percent drop in sales this year, Keller said the changes he made have helped his business to remain profitable. He credits that profit to being proactive.

“It’s surprising how when you really manage every expense and challenge yourself to cut back all the little things really add up,” he said.

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