Free Business and Financing Articles

When your business grows too quickly or needs to move to a smaller location, you need to create and execute an action plan that will have a good short and long term impact. Consider portable storage or other moving container companies designed for and experienced in commercial storage. You don’t want the move to become too expensive hurting your profit during expansion or crippling you cash flow situation when it needs to be protected the most.

Don’t under estimate costs as well. Plan carefully and create a “moving budget”. Consider financing for you move to avoid financial issues that may impact your business in a negative way.

There are many variables that you need to consider – do a search to find some good resources and articles on moving tips.

Making a physical backup of the data generated in a small business is a necessity that many small business owners overlook. But neglecting to make data backup a priority is inherently risky since theft, system failure, or damage can easily compromise the data stored on a computer. Moreover, making a physical backup of data means that valuable information can be moved off-site, safe from things such as fire or flooding.

There are several methods of transferring your backup files to another media. Here are a few of the most popular options:

• CD-Roms. What makes this method popular is that it is inexpensive and easy. But it is probably one of the most unreliable methods of data backup. CDs have a limited shelf life, are easily damaged, and are often rendered “unreadable.” If you plan on using this method, you should make several copies and check the CD afterward to make sure the information is accessible.
• External hard drives. External hard drives are relatively cheap compared to tape drives (a few hundred dollars versus approximately $1,000). With this method you can expect ease of use and higher reliability.
• Tape backups. The use of a tape backup drive is probably the most reliable of all options listed here. But this reliability comes with a hefty price tag. A good tape drive can will cost over $1000, and individual tapes for the drive can cost up to $40 each.
• Online backup services. Do an online search for data backup services and several companies will pop up. While this may seem like an attractive option, there are many security issues involved. Before you choose this method, consider how sensitive is your data. You should also research different companies. Find out how long each one been in business, what security systems they have in place, and ask for references.

Your data backup is as good as the method you choose. Do your research to determine which method is right for you and your business.

Though many small business owners spend significant amounts of time and money getting the right virus protection and security solutions for their computer systems, backing up data is often neglected. The truth is, however, that any business that relies on its data (which is most businesses these days) should make good data backup solutions a priority.

Why should you back up data?

With so many threats to your valuable business information this question is really a no-brainer. From power surges to viruses, or just plain age and overuse, PC hard drives can and will fail. If your only data backup is on a computer, and the hard disk fails or is damaged, then your business data is gone.

Having physical paper copies of business data is also not adequate protection, due to the possibility of theft, fire, and flooding. Do not leave data backup as an afterthought for when it is to late.

What should you backup?

When it comes to business data protection the general rule is if losing a particular kind of data will interfere with the way you do business, then back it up. For most businesses this information includes: customer databases, payroll records, income and sales records, important emails, addresses, as well as to-do-lists and schedules. All of the files that you have created and modified should also be backed up on a regular basis.

Keep in mind that you can always reinstall any software programs if you need to, but recovering the details of business transactions or important correspondence is impossible if those files are either irretrievably lost or damaged.

How should you chose the right method?

There are many reliable data backup solutions on the market available for small businesses, including backup software programs, tape backups, external hard drives, and off-site backup services. To determine which method is right for you and your business, you need to answer the following questions:

1. What kind of data needs to be backed up?

2. How sensitive is your data?

3. What are your physical and financial resources?

How often should you back up your data?

The answer to this question will really depend on the circumstances of your business as well as the method or methods of data backup that you have chosen. If you are using a backup software program, then you can usually set a schedule that will archive your data automatically. If your data backup system is on-site, then it would be worthwhile to back up your data on a daily basis, or at least a few times a week.

If you have the means to make physical backups that can be moved off-site, such as a tape backup, then it would be advisable to perform a data backup in this way at least once or twice a week.

Bottom line here is that you need to keep your data backups current and consistent. A good data backup solution is just good business sense.

Environment consciousness and the drive to “go green” is a trend that has left its footprint across countless industries causing entire businesses to transform their operations. The small business owner who wants to run a successful operation cannot afford to overlook this trend. But the reality is that many small businesses have limited resources to invest in things like renewable energy sources, environmental business consultants, or biodegradable packaging.

So what can a small business do to be more environmentally friendly without making a huge investment of time or money? Actually, quite a lot. Here are a few simple ways to make your small business more environmentally friendly

1. Reduce energy consumption. Turn off computers and lights when not in use. Use natural lighting where possible. Switch to energy-efficient bulbs. You can also make your air conditioning and heating units run more efficiently by putting them on a time switch, cleaning and replacing the air filter, and giving them a tune-up by a qualified technician.
2. Look for equipment that has energy-saving or waste reducing features. When it is time to bring in new equipment look for energy-saving and eco-friendly features that can reduce costs by operating more efficiently while making little or no environmental impact.
3. Rent or lease equipment instead of buying. Consider leasing copiers, computers, and other equipment from manufacturers who will be able to properly recycle and dispose of their goods at the end of their life cycle. Consider renting equipment that is used only occasionally or buy it second-hand.
4. Look to reduce and recycle waste. Set up a system that will cut back on paper, such as photocopying on both sides of the paper, using the blank side of printed material as well as outdated forms and letterheads for in-house memos and drafts, and e-mailing reports instead of printing them out.
5. Make your workplace environment greener. Adding plants, such as spider plants and peace lilies, to your workplace will filter out the pollutants in the air. Bring in calming, natural scents, such as lavender. You can also use natural and biodegradable cleaning products, such as vinegar, baking soda, and borax.

In short, there are many ways to be more environmentally friendly and efficient, to “go green,” without going away from what you do best- running a small business.

Effective pricing of products is an art. Reaching that delicate balance between consumer demand and product value generally takes a great deal of research and insight. But those business owners who continually invest in this process will position their businesses to maximize the revenue potential from their customers and ultimately increase their bottom line.

When trying to price the products in your business, there are several things to consider:

• What are you selling? Your first consideration when determining your pricing strategy is to take a look at the products themselves. Are you offering a high-end or specialized item, or something more generic? If the price of a high-end or specialized product is set too low compared to competitive products, then customers will perceive that the quality is lower. On the other hand, a standard product that is significantly higher in price compared to those of competitors may drive away customers who feel the product is overpriced.

• Who is your target market? Who shops at your business, what products and services are they looking for, and what are their spending habits? Since pricing is directly linked to consumer demand, awareness of the current consumer trends is invaluable to running a successful small business.

• What is your competition doing? In order to properly price your products and services it is essential that you determine what your competitors are charging and what the customers get for their money in terms of value and service. This information should give you a general price range for the products and services you are offering.

• What is your business’ perceived value among customers? The value of your products is greater then raw materials and labor that was used to create them. Convenience, customer service, free or immediate shipping, location, brand name, and reputation all add to the value of your products and will effect how much a customer is willing to pay for them.

• How should your salespeople close a deal? To encourage consistency and quality performance from your salespeople, you should create price guidelines that contain a target price, price floor and price ceiling, and then only allow deals that fall within this range. You should also create an incentive program that rewards high profit margins over sales volume, since salespeople may try to sell products and services at the lowest possible price in order to close the deal.

With all the hubbub involved in running a successful business, pricing management is often pushed aside with barely the slightest consideration. The truth is, however, that good pricing management can virtually boost a business’ profit margins overnight. Since small businesses typically operate on a tight cash flow and even tighter profit margins, pricing management is an invaluable tool that can help business owners in their quest to maximize operations and performance.

Addressing your pricing strategy in a systematic fashion, brings several benefits to your business:

1. Good price management can stop revenue and margin leaks. Through effective price management you will stay in touch with the amount that customers are willing to pay for the products and services you offer and thereby reduce the risk of revenue loss through underpricing or overpricing.

2.You will stay in touch with the needs of your customers. Since pricing is heavily connected to consumer demand, you will need to be aware of the current consumer and industry trends. This information is invaluable to running a small business where success is often determined by the ability to establish a niche market and quickly cater to changes in consumer demand.

3. Learn the value of your products and services. The value of your products goes way beyond the raw materials and labor that was used to create them. Convenience, customer service, free or immediate shipping, location, and brand name, all add to the value of your products and will effect how much a customer is willing to pay for them.

4. Recognize the strength of your brand name. A small business’ reputation among customers is an asset that is often overlooked, yet can greatly add to the value of a product.

5. Encourage consistent and quality performance from your salespeople. You can establish price guidelines for salespeople that contain a target price, price floor and price ceiling, and then only allow deals that fall within this range. You can also create an incentive program that rewards high profit margins over sheer sales volume.

In response to recent trends in Internet usage among adults, a growing number of restaurants are trying to establish their presence on the Web. This has resulted in a versatile and evolving relationship between the restaurants and their customers that is slowly, but surely changing the restaurant and food services industry. Restaurant owners looking to maintain their niche or expand operations cannot overlook the importance of having a web-based marketing plan.

There are many benefits and factors involved in web based marketing, the following are a few things to consider:

• A web page puts you on the map. Consumers today are using the Internet as they would the Yellow Pages. A quick online search will reveal which restaurants exist in a particular location. This is particularly important for small restaurants rely on a local customer base. A web presence will reach out those in community that are not familiar with what you offer well as business travelers and other people from out of town.
• Use the personality of your restaurant to draw customers. Consumers consider several things when they go to a restaurant’s website. Not only are they looking for basic information, such as menu options, price, and location, but they are also checking the restaurant’s unique feel and style.
• Create a medium to interact with customers. A web presence allows you to put up and change your menu options, announce specials and special events, and your customers can order online or reserve a table.
• Establish personal contact with your customers. You can take the relationship with your customers a step further by having a email list and even sending personalized messages, such as sending an email on their birthday with a discount coupon.
• You can monitor the response to your marketing. You can keep track of how many people click on to your site versus the increase in sales activity. You can also monitor the customer response to special online coupons.

In short, web-based marketing is fast becoming a necessity among restaurant owners wanting to keep in stride with the current consumer trends and to take their businesses to the next level.

The majority of small businesses today rely heavily on hardware and software systems in a variety of areas including, operations, production, and business planning. Therefore, knowing how and when to upgrade these systems is essential to the health of the business and can make a big impact on the bottom line. Here are a few things to consider before upgrading the hardware in your small business.

• Why are you looking to upgrade? Depending on your needs, certain upgrades may not necessitate purchasing a whole new system. To increase speed, processing power, and available memory, you can add additional RAM to your existing hardware. You can also add devices, such as CD burners and hard drives.

• What are the estimated costs of not upgrading? Knowing this information is important when deciding the right time to completely change over your system. When the costs of not upgrading, such as a decrease in productivity or lost potential sales, is greater than the cost of new equipment, then it is time to change the system.

• Factor in all the costs associated with revamping your system. Consider all the costs that are indirectly related to acquiring new hardware. Do you need to hire someone to set it up? Do you need to make any renovations to support the new equipment? Are you also buying advanced software?

• What are your expected needs in the future? How do you anticipate using your hardware in the future? Is your business currently growing or changing in some way? Before purchasing any equipment, make sure it will be able to handle any grow or operational changes.

• What is your available budget? Obviously, having the most cutting edge equipment will mean nothing if buying it leaves you bankrupt. If your cash flow is tight, then look into your options. Either compromise on the quality of the equipment or put off getting completely new hardware in favor of enhancing your current system. Alternatively, you should consider computer leasing. If you get a lease with an option to upgrade at the end of the term, you also can keep up with the latest advancements in technology.

In short, many factors must be considered before making any changes to the hardware that your small business runs on. Do your research in order to get the right fit for your business.

Point of sale (POS) software is fast becoming a staple among small businesses. Business owners looking to gain more control over operations while freeing up precious time and resources are turning to POS systems as an efficient solution. If you are still running your small business with a manual cash register, then chances are you have a lot to gain by implementing a point-of-sale system.

What Hardware Do You Need to Run POS Software?

Though there is some variation among different systems, the hardware requirements are generally the same:

• A working computer with a standard Windows operating system
• A receipt printer
• A cash draw
• A bar code scanner and printer (required for all except the most basic systems)

 What are the Benefits of POS Software?

When considering POS solutions, a lot will depend on the nature of your business and how much you are willing to pay for the software. In general, POS software provides an automated system that integrates sales, inventory, purchasing, and bookkeeping. It can be a powerful tool that can help you make decisions in management and financial planning. POS software can cater to a spectrum of needs including:

• Inventory management. You can update your inventory numbers as the merchandise is purchased and be alerted by the program when your stock hits a certain re-order threshold. You can also be on top of shrinkage due to theft or damage.

• Store and update information. Through POS software you can maintain data on vendors, customers, billing, and shipping.

• Bookkeeping and payroll. Some POS systems also include bookkeeping as well as employee payment and management capabilities.

• Reporting. A point-of-sale system can help you to identify product life cycles, customer buying patterns, and seasonal trends. All of this information is invaluable to your business planning.

Some Considerations Before Buying a POS System

Point-of-sale systems range in capability, price, and they can be industry-specific, so make sure to do your research before purchasing a system. Also, depending on the nature of your business, it may be more valuable for you to invest in other software solutions, such as an accounting suit.

Whatever system you decide on, it is clear that point-of-sale software solutions can be a tremendous tool for your small business. Your business will operate more smoothly, and it can help you to maintain your competitive edge.

In October 2007, the National Restaurant Association conducted a survey involving over 1,200 chefs in the American Culinary Federation. Participants in the survey were asked to rate 194 food items, beverages, cuisines and preparation methods.

The survey picked up on several trends within the restaurant industry. Consumers prefer smaller portions, with bite-sized desserts and small plates/tapas/mezze being rated by chefs as the first and forth hottest food items. “Green” options, such as organic or locally grown produce and sustainable seafood, also rated well among the survey’s participants. Finally, the survey revealed that consumers are looking for unique tastes and mixtures.

The following is a list of top 20 hottest items on the menu:

1. Bite-size desserts

2. Locally grown produce

3. Organic produce

4. Small plates/tapas/mezze

5. Specialty sandwiches

6. Craft/artisan/microbew beer

7. Sustainable seafood

8. Grass-fed items

9. Energy drink cocktails

10. Salts (e.g., sea, smoked, colored, kosher)

11. Ethnic fusion Cuisine

12. Flatbreads

13. Martinis/flavored martinis

14. Mojito

15. Asian Entrée Salad

16. Pomegranates

17. Asian Appetizers

18. Microdistilled/artisanal liquors

19. Organic wine

20. Specialty Beer (e.g., seasonal, fruit, spice/herb, beer cocktails)

The National Restaurant Association recently released its 2008 Restaurant Industry Forecast revealing several key trends within the restaurant industry. According to its findings, American consumers are seeking unique flavors, specialized foods, and convenience. The restaurant industry is expected to respond to consumer demand by offering more variety and ordering options.

The following is a brief summary of the major trends predicted for the coming year.

Consumers are more health conscious. Americans are more focused on health and nutrition then they were two years ago with 76% of adults and 73% of teenagers responding that they are choosing more healthy options when dining out. In response, restaurants are providing healthy meal options and smaller portions.

Going green is going strong. Green consciousness is effecting the restaurant industry in two major ways. Restaurants are operating in a more environmentally- friendly way by having equipment that saves water or energy, or by offering supplies and packaging made of eco-friendly materials. A small percentage of restaurants are also offering organic or locally grown food, sustainable seafood and meats.

According to the Restaurant Industry Forecast, 62% of consumers say they are likely to choose a restaurant based on how environmentally friendly it is.

Look for food on the go. With tight or hectic schedules, most consumers are looking for ways to take the food they love with them. Popular takeout options among restaurants include: curbside pickup, drive-thru, catering, and delivery. Approximately half of the consumers surveyed said that they would use curbside pickup or delivery if offered by their favorite table service restaurant.

People want more ordering options. Consumers are looking for convenience and control when it comes to placing orders. Restaurants are allowing consumers to place orders via the Internet, fax or cell phone. Consumers are also seeking ways to customize menu items, initiate self-activated ordering and make prepayments.

In general, the restaurant industry in 2008 is expected to out perform the previous year. It is also predicted that approximately two million new career and employment opportunities will open up in the next decade. Since the average American adult buys a meal or a snack from a restaurant or foodservice outlet about 6 times a week, it is no surprise why this industry is going strong.

 With all the dismal talk surrounding the economy and the subsequent belt-tightening of the lending industry, peer-to-peer, or P2P, lending has been a warm ray of light and hope. It is the natural outgrowth of an increasing demand for financial assistance coupled with the versatility and social reality of the Internet. Through peer-to-peer lending, consumers and small businesses can access loans from other people on the Internet while avoiding banks or credit cards.

How It All Started

As the credit bubble started bursting, banks and lending institutions began tightening the requirements needed to secure financing. This left numerous individuals and small businesses scrambling for alternative means of funding. When faced with such a situation, many people instinctively turn to their family members, friends, and neighbors. While this may provide a quick funding solution, it lacks the formality and security that traditional lending offers.

But the future looks bleak for those seeking traditional financing. It is well known that the decrease in Federal interest rates will not necessarily filter down to the consumer.

How Peer-to-Peer Lending Works

Enter the vast social networking world of the Internet. Numerous sites have been recently launched that create a marketplace for borrowers and lenders to find each other. Even among friends and family, everything is carried out formally and professionally. These sites provide identification and verification services as well as an assessment of the credit risks. Clear, precise documentation covers the loan’s terms and conditions as well as the repayment schedule and tax payments as determined by both parties

Though there is some variation among the different sites, they all basically operate the same way. Borrowers post their loans including any information necessary for a lender to consider the request. Included in the post is the amount requested and the maximum amount of interest they are willing to pay. One unique aspect to peer-to-peer lending is that it gives people the chance to tell their story.

Some sites open the loan request up to many people at a time- both acquaintances and strangers. The loan is then set in small increments which allows several different lenders to fund portions of the total amount and thus spread out their risk.

Once funding has been completed, many peer-to-peer lending institutions continue to provide loan administration throughout the duration of the loan. This includes monitoring repayment. If 30 days go by without a payment, the loan is immediately sent to a collection agency.

The Major Players

Currently, the largest peer-to-peer lending website is Virgin Money. Virgin focuses primarily on lending among family and friends and promotes their formalized process.

The next largest site is Prosper.com which, like Virgin, encourages friends and family to lend to each other, but they also open their market up to strangers.

Another service, Lendingclub.com, requires a business profile and uses a search algorithm that matches prospective lenders and borrowers.

Other popular sites include: Zopa.com, GlobeFunder.com, and Community Lend.

Some Drawbacks

Like every good thing, peer-to-peer lending does have its drawbacks. Most sites put a cap on the amount that can be funded- usually around $25,000. So those seeking larger amounts will need to look elsewhere. Moreover, like any other traditional loan, defaulting on payments will tarnish a credit rating and thus prevent future financing. Finally, even with the formalized process, the general rule is that money and relationships don’t always mix so nicely- especially if payments are not met.

The bottom line, however, is that peer-to-peer lending is here to stay as a quick source of financing and a ray of hope for those who need.

With a little discipline, good organization, and planning, small businesses can safely survive an economic downturn. Here are a few suggestions on how to stay afloat:

1. Stay in touch with your cash flow. Focus on the areas where your cash is being held up, such as inventory, equipment purchases, and accounts receivable. By doing so, you will be in a position to improve your current cash flow and predict a future shortfall.

2. Consolidate or restructure your debts. Bring together debt from loans, credit cards, or any other lines of credit. Negotiate with creditors for a longer repayment period.

3. Look for ways to cut costs. You could, for example, cut down on old and obsolete inventory, and save on paper and postage through the direct deposit of payroll.

4. Streamline your billing system. You need to on top of your customer receivables. There are several accounting software programs on the market, such as QuickBooks, that can help you keep track of who has paid and automatically alert you when bills are overdue.

5. Tighten your credit policy. Set stricter terms and conditions for receiving credit. You could require a down payment at purchase, shorten the payment period, and only extend credit to select customers.

6. Use assertive debt collection techniques. Know when to make phone calls, send written requests for payment, and statements, and know when it is time to hand it over to a collection agency.

7. Put off any plans for expansion. It is better to stick to what you are already good at and just try to make it better.

8. Negotiate with your suppliers. You can try to barter down what you are paying your suppliers. If you have a long term relationship with any of your suppliers then you may be able to get better credit terms.

9. Outsource certain jobs or tasks. Business owners can take advantage of a growing pool of professional freelance workers for any job or project that will take away from the business. This is a cheaper option to hiring employees, and you can get some quality work.

10. Focus on customer satisfaction. Work on retaining the customer base that you have built up with follow-through, good customer service, and quality control.

11. Know your financing options. Know where to get money before you need it. Some financing options are based on future sales and have flexible repayments, such as invoice factoring or merchant/ business cash advances. Focus on building relationships with current lenders, and do not forget about any family or friends who may be able to help you out in a pinch.

Financing a beauty salon involves maintaining a positive cash flow against high overhead costs and an income that can be slow or inconsistent- especially in the first few years of business. To improve their cash flow, most beauty salon owners seek outside funding, but soon realize that traditional forms of financing, such as bank loans, are difficult to obtain. The answer to this dilemma for many salon owners has been to seek alternative methods of financing.

What are the Overhead Costs to run Beauty Salon?

Running a beauty salon involves several major overhead costs:

• Real estate. Success with a beauty salon depends to a large extent on location. Real estate expenses will be one of your highest overhead costs.

• Payroll. The success of your beauty salon is also heavily dependent on the talent, ability, and attitude of your employees. As front-line representatives, they are your greatest asset. But the investment you will make in them will also be one of your greatest expenses.

• Inventory. This consists of all the beauty supplies and products that you must purchase for your beauty salon. Keeping your inventory well-stocked is essential to smooth operation.

• Equipment. From blow dryers and curling irons to tanning beds and hot tubs, a beauty salon must be well-equipped.

A Beauty Salon is Considered “High Risk” Financing

Banks are reluctant to approve financing for beauty salons because they are considered a “high risk” investment. Not only is much of a beauty salon’s capital tied up in overhead, but the income it generates is generally inconsistent. Like any retail or service business, a successful beauty salon needs time to develop a loyal customer base. Thus, for the first few years revenue can be very unstable.

Moreover, in the beginning when sales are slow or inconsistent, it could easily lead to late or missed payments for loans or any other form of debt. The result is a bad credit rating that can negatively effect the chances of receiving traditional financing in the future.

What are Your Options?

For a new or expanding beauty salon to operate effectively, it needs additional sources of financing. When securing traditional financing is difficult, there are several alternative methods of funding that are suitable to a beauty salon.

Vendor financing. If you are looking for financing for equipment or supplies, then you may be able to get it from your vendor. Vendors can sometimes play a major role in financing a new or growing business. Just keep in mind that you need to shop around for credible companies, and you can expect to pay a higher interest rate on any financing that you receive.

Lease your equipment. Instead of purchasing all of your salon equipment and furniture, try leasing it. Through equipment leasing, beauty salon owners can free up their working capital which can then be used to operate and grow their businesses.

Get an unsecured business cash advance. A business cash advance is a small business finance method that is based solely on future credit card transactions. The company offering the cash advance will purchase these credit card transactions at a discount and provide your beauty salon with a quick injection of cash. The approval process is generally quick, and the money can be received within a week of approval. Since financing is based on future sales, credit and sales history are usually not considerations. Payments are also based on sales volume.

Getting the financing you need to run and grow your beauty salon is possible; you just need to know where to look.

Knowing how to successfully expand a small business is a skill that many business owners do not possess. According to statistics, most small businesses will fail within the first five years of operation. Though there are several contributing factors behind this statistic, the common thread among most of these failed ventures is that their owners did not know how to properly manage their small businesses as they began to grow.

For an expanding small business to be successful, it requires a great deal of attention, care, and knowhow as well as adequate financing. If you are the owner of a newly established or growing small business, then here are a few tips you should keep in mind:

1. Do your research before making any major decisions.

Put simply, the more informed you are, the better will be the decisions that you make. If you are looking to offer new products or services then first consider what the impact would be given current market conditions as well as your available resources. If you are planing on changing your location, then you should consider whether to buy or lease your property. You should also look into different commercial real estate companies and terms of lease.

2. Try to stay one-step ahead of your growth.

To save on time, money, and productivity, you should try to be prepared for any future changes your small business is likely to experience. If, for example, you are renovating your location, then build into your plans more space than what you currently need.

3. Watch your cash flow.

It is common among small businesses to struggle with tight cash flow. This is all the more true when a business starts to rapidly expand. As growth happens, it is easy to loose sight of your expenditures. Since a lot of money is being directed outside of the business for new equipment, new supplies, or higher payroll expenses, a cash shortfall is usually inevitable.

Make sure that you have several financing options in place. If traditional funding opportunities are limited, then consider alternative forms of financing, such as equipment leasing, invoice factoring, or business cash advances based on future credit card sales.

In short, as your small business begins to expand, the key to success lies in careful planing and preparation.

Before handing over delinquent customer accounts to a collection agency, many small businesses make their own attempts to secure overdue payments. How successful they are largely depends on the debt collection system they have in place. Knowing how to effectively collect outstanding customer debt is an important tool that will improve your small business cash flow and help to maintain the general health of your small business.

The following is a brief guide to effective, internal debt collection:

• Create a clear credit policy. Outline the terms and conditions for establishing credit with your company, as well as the actions that will be taken when accounts are overdue. You should make sure to make this policy available to your customers, especially when an account is overdue, so that they know clearly what to expect.

• Assertive collection strategy. Being assertive in your collection efforts will send a clear message to your unpaid customers that you are up-to-date and in control of the situation. You can, for example, make a collection call a few days before an account’s due date, and then again a few days after the due date has passed. You should also discourage extended payments unless you have good reason to believe, based on past experience, that a customer will come through on the account.

• Review collection process. Your collection process should change to suit current economic or market conditions. When the economy is in a downturn, make sure you protecting your business against loss. This means have stricter requirements to buy on credit (like requiring a down payment at purchase). You should also step up your collection procedures by, for example, shortening the pay period and strengthening collection tactics.

• Keep accurate records. Make sure that you maintain clear, accurate, and up-to-date credit files and payment histories on each of your customers. You should also follow-up on any changes in payment patterns.

• Keep up communication. As long as the lines of communication are open there is always the chance that you will reach an agreement and receive some or all of the money owed to you. While you need to be firm, it does not mean that you should be rude or disrespectful. Doing so will only backfire on you. You can try meeting your customer in person to discuss a payment schedule.

• Know your options. You need to know what your options are if you are unable to collect the outstanding debt. You can, for example, try to find a good collection agency. This will give you piece of mind, and will allow you to quickly move the debt through your business so you can focus on other things.

You may also be able to claim part of the loss on your tax return. (Tax Code IRC 166, Reg. 1.166). You can not deduct any lost profits, nor money owed for services rendered, but you will be able to deduct the cost of the goods sold

Though offering customer lines of credit has become standard practice among small businesses across various industries, many businesses these days are finding themselves rich in outstanding receivables, but poor in cash flow. When in-house debt collection fails to reign in unpaid customer debt, a small business may want to consider hiring the assistance of a professional collection agency.

When to Use a Collection Agency

If you are on top of your billing process, then once a bill is overdue it should set in motion a series of actions, such as sending out statements and collection letters and making phone calls. If the debt remains unpaid after a reasonable amount of time has passed (usually between two to three months past the due date), then it should be handed over to a collection agency.

Keep in mind that timing can make a big difference when it comes to collecting on overdue accounts. Statistically, the likelihood of collecting on an unpaid account drops to 73% after three months have passed. If the unpaid account is over three months, then the probability of cashing in drops dramatically to 57% after six months, and to only 29% after one year.

What to Look for in a Collection Agency

Collection agencies are in the business of collecting unpaid debt, so they generally have the tools and the knowhow to get the job done. But not all collection agencies are equal.

The first thing you need to do is make sure that the collection agency is either a member of the Association of Credit and Collection Professionals or the Commercial Law League of America. Both of these organizations require that their members adhere to a strict code of ethics and business practices. Member agencies are also required to maintain a bond in the minimum amount of $300,000 for the protection of the companies they serve.

The next major factor is the collection agency’s recovery rate. You need to find out the percentage of unpaid debt that the collection agency expects to return to you. You should ask the collection agency to provide you with its “net back” figure. Net back means the amount of money returned to a company from the unpaid accounts after the agency has received its fee.

You should also ask the collection agency to give you a list of references. You could place a couple of calls to the businesses on this list and find out how satisfied they were with this particular agency.

When All Else Fails…

If you try to recover a debt, but are unsuccessful, you may be able to claim part of the loss on your tax return. (Tax Code IRC 166, Reg. 1.166). You can not deduct any lost profits, nor money owed for services rendered, but you will be able to deduct the cost of the goods sold.

When customers do not pay on time, it can take a big chunk out of a small business’ working capital. This added financial strain can put a small business in a difficult situation. It is well known that small business success is closely associated with the ability to maintain enough working capitol to pay for operation and growth. Therefore, being able to get the money tied up in outstanding customer receivables is essential for the business to thrive.

The following are a few tips on how you can get the money that your customers owe you:

• Streamline your billing system: If you want to maximize the money you get from outstanding customer receivables, then the first step to is to make sure that your billing system is running efficiently. You need to have a clear and accurate accounting of what is happening with your customer receivables. There are several accounting software programs on the market, such as QuickBooks, that can help you keep track of who has paid and automatically alert you when bills are overdue.

It is also good business practice to clearly record when you send out any written requests for payment or make any phone calls.

• Create a plan of action: You should have a set strategy for handling any overdue bills. This strategy will include when written requests for payment will be sent out, when phone calls will be made, and at what point the debt will be handed over to a collection agency.

• Offer incentives for early payment: Alternatively, you can try to make paying on time attractive to customers by offering discounts on the amount owed. Some customers will find that it is worth it to pay on time in order to take advantage of the price break.

• Reevaluate terms of payment: If you see that most of your customers are consistently paying their bills late, then you may want to reevaluate and adjust your terms of payment. Perhaps you can extend the payment period, but require an initial down payment at purchase.

• Factor accounts receivables: If your business is suffering from a cash shortage due to the amount of outstanding customer receivables it is sitting on, then you may want to consider factoring them. With account receivables factoring, a business sells its receivables at a discount to a factor company. The factor company, in turn, provides the business with instant payment.

Another benefit of factoring your accounts receivables is that once the factor company purchases the invoices, it becomes responsible for collecting the outstanding debt.

• Send bills to a collection agency: When a debt is overdue past a certain period then the best option may be to hand it over to a collection agency. Just keep in mind that the longer you wait, the less likely it will be for you to receive your money.

Setting up a system for performance management is sound business practice. Though performance management is usually associated with big and mid-sized businesses, small businesses have much to gain from evaluating how their employees work. This is especially true since many small businesses typically undergo rapid growth and/ or change. Performance management can help small business managers stay on top of productivity given changes in job descriptions or location, and hiring new employees.

A solid performance management system includes four basic elements:

1. It provides a clear understanding of job expectations. Create a clear and detailed job description for each position in your business. Each job description should describe the employee’s current duties and performance expectations, including: job function, required skills, deadlines and goals, as well as relations with peers and customers.

It is important to update your job descriptions especially if your business is rapidly growing or changing, since this could lead to new job responsibilities and shift in workload.

2. There is a system in place to measure job performance.
Once you have clearly defined each position, you need to find a way to evaluate job performance. For some jobs where there is a quantitative output, this can be relatively easy, such as measuring how many sales were completed, or how many items were constructed. Other positions may require more subjective measurements, such as customer satisfaction.

3. Management offers regular feedback about performance. Once you have evaluated your employees’ job performance, it is vital that you give them advice and feedback on how they are doing. If their performance is average or above-average, then make sure to let them know. If there is room for improvement, then give them suggestions on how to perform better.

Some of the feedback and suggestions for improvement could actually come from the employees themselves. Therefore, do not forget to tap into this resource by asking your employees how things could be made better.

4. There is a reward system for good performance. Make sure to have a system in place that recognizes and rewards good performance. Just try to ensure that your definition of “good” performance is not set too high. Otherwise, you may create a system that only recognizes the contributions of the over-achievers.

Building good employee morale is one of the most important keys to running a successful small business, and it starts with the recognition that your workers are one of your biggest assets. Aside from productivity, your employees can be a source of innovation and a positive customer experience that will lead to increased sales. Knowing how to bring the best out of your employees will therefore not only make your business a more enjoyable place to be, but it will also effect your bottom line.

The following are 5 tips to building employee morale in your small business:

• Communication: There are several aspects to communication with your employees: initiating dialog, encouraging your employees to speak, and then listening to what they have to say. Your workers will appreciate your openness if things need to change, such as the introduction of new equipment or a change their work patterns, and they will further appreciate being able to voice their concerns or offer helpful suggestions that you may not have thought of.

• Response: But it is not just good enough to hear what your employees are saying, you also need to respond to it. Whether an employee brings a complaint or a cost-saving suggestion, and irregardless of the actual action you end up taking as a result, you should try to get back to your employee about the issue. The more validated and understood your employees feel, the more change they will be able to withstand and the more helpful tips they will be able to offer.

• Recognition: You will also go a long way with your employees by recognizing their efforts. Just keep in mind, that what ever recognition and reward system you set up, make sure that it is not just focused on the outstanding performers. Some of your employees may never be outstanding, even if they technically do a good job. So make sure to also focus on the average players.

• Involvement: Getting employees involved in some of the big business decisions, especially the ones that will directly effect them, is another good way to build employee morale. You could for example, set up a small committee among the workers to come up with ways to increase efficiency or sales.

• Advancement: Make sure you have a set plan for employee advancement. This plan should include steps to increased responsibility, higher paying jobs within the business, and a raise schedule.