Category: economy

Strategies for Mitigating Cash Flow Problems

Strategies for Mitigating Cash Flow Problems in Business Operations

Cash flow is the lifeblood of any business, essential for day-to-day operations, growth, and overall stability. However, managing cash flow can be challenging, especially when faced with unexpected expenses, delayed payments, or seasonal fluctuations in revenue.

In an article by Yahoo! Finance, small business bankruptcies rose with a 29% increase in Chapter 11 filings in September 2023 compared to September 2022

Mitigating cash flow problems requires proactive strategies and a solid financial plan to ensure the smooth functioning of a business. Here are some effective approaches for businesses to consider:

  1. Create Accurate Cash Flow Forecasts: Developing precise cash flow projections can provide a clear understanding of expected income and expenditures. By analyzing historical data, upcoming expenses, and revenue patterns, businesses can anticipate cash shortfalls and plan accordingly.
  2. Optimize Invoicing and Payment Processes: Streamlining invoicing procedures and implementing clear payment terms can expedite the collection process. Offering incentives for early payments or setting up automated reminders for overdue invoices can encourage timely settlements, thereby enhancing cash available to the company.
  3. Negotiate Favorable Payment Terms with Suppliers: Collaborating with suppliers to negotiate extended payment terms or discounts for early payments can ease immediate financial pressures. Establishing mutually beneficial agreements can help in managing cash flow more effectively.
  4. Control Inventory Levels: Maintaining excessive inventory ties up capital that could be used elsewhere. Regularly assess inventory levels, identify slow-moving items, and adjust ordering to match demand. Just-in-time inventory management can minimize surplus stock and free up cash.
  5. Explore Financing Options: Utilizing various financing options such as lines of credit, business loans, or invoice factoring can provide immediate liquidity during cash shortages. However, it’s crucial to weigh the costs and terms associated with each option.
  6. Implement Cost-Cutting Measures: Review operational expenses regularly and identify areas where costs can be trimmed without compromising quality or efficiency. This might include renegotiating contracts, reducing non-essential expenses, or optimizing processes to increase productivity.
  7. Diversify Revenue Streams: Relying heavily on a single source of income can make a business vulnerable to fluctuations. Diversifying revenue streams by introducing new products/services or targeting different market segments can help stabilize cash flow.
  8. Maintain a Cash Reserve: Building and maintaining a cash reserve serves as a safety net during lean periods or unexpected emergencies. Setting aside a portion of profits for contingencies can prevent cash flow disruptions.
  9. Monitor and Manage Debt Effectively: While debt can be a useful tool for growth, excessive debt or high-interest repayments can strain cash flow. Regularly review debt obligations and consider refinancing options to lower interest rates if feasible.
  10. Seek Professional Financial Advice: Consulting with financial experts or hiring experienced financial advisors can provide valuable insights and guidance. Their expertise can assist in devising tailored strategies to address specific cash flow challenges.

In conclusion, managing cash flow is an ongoing process that requires vigilance, strategic planning, and adaptability. By implementing a combination of these strategies, businesses can mitigate cash flow problems, ensuring financial stability and fostering long-term success.

Remember, each business is unique, so it’s essential to assess individual circumstances and tailor these strategies accordingly to effectively address cash flow challenges.

Contact Us or Book a Consultation for help with mitigating your business cash flow problems.

The Case for Small Businesses

The Case for Small Business

The case for small businesses is a strong one. From job creation to patents filed, small businesses are a major driving force in the economy.

Small Businesses are an Engine for Job Creation

Despite losing 9.1 million jobs in the first two quarters of 2020, small businesses’ job growth rebounded swiftly following the COVID-19 recession. In the four quarters following, small businesses have gained 5.5 million jobs, making up for 60 percent of the decline during the early pandemic. Small businesses have generated 12.9 million net new jobs over the past 25 years, accounting for two out of every three jobs added to the economy. Source.

Small Businesses are Drivers of Innovation

Experts often use patenting activity as a proxy for innovation. Data from the National Science Foundation show that small businesses that engage in R&D generate more patents per employee than larger businesses that engage in R&D. However, small business patenting activity fell significantly following 2010.

The decline is now reversing. Small businesses recovered to two-thirds of peak patent application levels from 2015 to 2018 and recovered to half of peak patents received levels in the same timeframe. Source.

Small Businesses Need Support

Unfortunately, more than 90,000 restaurants that have closed across the U.S. in the past two years. Restaurant industry sales in 2021 were down $65 billion from 2019’s pre-pandemic levels. A touching article in High Country News tells the touching story of the last day at DeDe’s, a mom-and-pop restaurant in St. George, UT.

She suffered a stroke a year ago and hadn’t been able to visit. “When DeDe found out, she made my mom’s favorite meal — a ham, mushroom, and spinach omelet with Swiss cheese and a slice of cantaloupe — and delivered it to the care facility,” Feesago said. “It’s more than food. DeDe made us feel like family.”

This type of value-added service without an exorbitant surcharge would be unheard of in a corporate restaurant scenario. The personal touch is also gone. Optimizing for profit results in diminished customer experiences. The typical story of a small company that grows until it catches the eye of a larger firm is common. The value and brand that the small company created are gutted to make room for shareholder value creation. The original loyal customers eventually leave because the magic is gone. This is done over and over again until Main Streets throughout the US begin to look exactly the same with the same 15 corporations.

The tragic irony in all this is that corporations spend a considerable amount of resources trying to recreate a “we treat you like family” environment that customers want. Unfortunately, it is just marketing, and the user experience is not genuine. The corporations would do better as a holding company that lets the small business operate with minimal interference. The parent company could provide occasional funding for expansions, hiring, and process improvements.

Small improvements can lead to significant benefits. Our blog post Competitive Advantage and Coffee talks about how a simple gesture such as remembering regular customers’ names can result in higher coffee sales. Another example is DK’s Donuts a small independent donut store in Santa Monica, CA that has been in business since 1983. Even when mega-chain Dunkin’ Donuts opened a block away, business did not suffer because the user experience, customer service in other words, was not there at Dunkin’ Donuts.

Launch and Grow Your Business

Contact us today to discuss how you can start your own small business.

The dominos are starting to fall in the U.S. economy.

From NPR’s Morning Edition:

“The dominos are starting to fall in the U.S. economy.

As the Federal Reserve pumps the brakes on the economy, many American companies are retrenching. There is a growing fear that as the central bank aggressively hikes interest rates to fight high inflation, it could tip the U.S. economy into a recession, and executives are cutting back.

A host of companies have announced job cuts or hiring freezes in just the last two weeks. They range from Tesla and JPMorgan Chase to Redfin and Coinbase.

Netflix last week announced a second round of job cuts for the year, this time eliminating around 300 positions. Earlier this year, the entertainment company announced it had lost subscribers for the first time in more than a decade. Since then, Netflix has eliminated roughly 450 positions.“

Read the rest of the article here.

Contact us to find a strategy to weather this upcoming storm and put you in a stronger position.

More Recession-proof Businesses

Is a recession on the horizon? U.S. stocks slumped lower Thursday, giving back all of yesterday’s post-Fed decision gains and pulling the Dow below the 30,000 point mark for the first time since early last year, as investors re-set prices on risk assets around the world in anticipation of faster near-term rate hikes and relentlessly high inflation.

The Federal Reserve delivered its biggest rate hike since 1994 yesterday, boosted its Fed Funds rate by 75 basis points to a range of between 1.25% and 1.5%.

What to do in a Recession?

Adaptability Charles Darwin - Your Startup Guru

As Charles Darwin observed, the most adaptable wins. We’ve been here before, a looming recession and people are worried about losing their jobs. Now is the time to think of the strategy that will help break one free of the whims of cost-cutting management.

Recession-proof / recession-resistant businesses

In a previous post, some recession-proof / resistant businesses were listed. Adding to that list are several more businesses that deserve consideration:

  • Gym / Fitness: Although fitness centers took a massive hit during COVID-19, it wasn’t for the lack of demand. According to the IHRSA, a global health & fitness association, the industry has been long thought to be, if not recession-proof, at least recession-resilient. Revenue from North American fitness clubs in 2009 (during the Great Recession) rose nearly 4 percent in 2008 from the year before, and membership grew by more than 10 percent, according to the IHRSA.
  • Independent contracting / Freelance services: When a recession hits employers turn to independent contractors as an alternative to hiring full-time employees. So, freelancing is a viable alternative to the traditional career path. The great thing is you can diversify your services so you can create multiple revenue streams. Most workers have a diverse set of skills that they can leverage. Also, there are many platforms such as Fiverr where you can easily share your skills.
  • Health and senior services: According to the Bureau of Labor Statistics, healthcare and other services for seniors are expected to grow by 23% by 2024. This service sector has already been expanding rapidly over the last decade. In fact, in 2019, there were 71.6 million Boomers making them the second-largest demographic behind Millennials with 72.1 million. As life expectancy continues to increase, the wide range of needs this market demands is large and profitable.

Sell Shovels in a Gold Rush

If you’re saying to yourself, “but I don’t have any experience in these fields.” Keep in mind the saying, “Sell shovels in a gold rush.” What this means is don’t be one of the thousands or millions of competitors jockeying for one goal. The thousands or millions of competitors can now be your customers. Find a product/service that meets their needs. Look to your transferable skill sets and network for inspiration on how to pivot into a career.

Feasibility Study

Once you have an idea of some pivot options you have to do a feasibility study to see which one is the best option for you. A feasibility study is a curtailed business plan-like document where you outline your product/service, the business model, your competitors & your customers, and expected revenues/expenses/startup costs. A well-done feasibility study can save hundreds of hours and thousands of dollars in sunk costs.

Contact us today to create a feasibility study for you.

The COVID Small Business Boom

brown wooden framed gold open printed decorative signage
Photo by Artem Beliaikin on Pexels.com

The Commerce Department said on Thursday, July 15, 2021, that business applications reached a seasonally adjusted 448,553 in June, 2021. In total, Americans have started 6,714,318 new businesses since the pandemic began last March, which is an all-time record.

According to Julia Pollak, an economist with ZipRecruiter, COVID created a very unique set of circumstances that made ideal conditions for people to start a business.

  • Many people were laid off on furlough and suddenly had time, but they didn’t have time that they needed to use to spend desperately searching for work because they also got a little bit of fiscal support. So there are many people who took that stimulus check and decided to take their $1,000 and use it to start a business.
  • Also, starting a business now is really fast and really cheap. You can register your business for just a few hundred dollars. And a lot of these companies are really little. It’s like a little store on Amazon or on Etsy. The startup costs for these businesses are super-low, so a stimulus check for $1,000 can make it happen in a way that it couldn’t have even 10 years ago.

If you are ready to start your business, contact us and let’s discuss the right path for you.

Pandemic led to U.S. housing boom, reduced credit card debt, New York Fed says

low angle photography gray sky
Photo by Adam Kontor on Pexels.com

Last month, the Federal Reserve Bank of New York released their quarterly report on Household Debt and Credit for the fourth quarter of 2020.

Although the ravages of the pandemic are still massive and widespread, there were some glimmers of a silver lining. Some takeaways being:

  • The coronavirus pandemic changed the way U.S. consumers use credit, as lower interest rates spurred a boom in home buying and refinancing and virus-related shutdowns led to a drop in credit card use and an increase in paying off debt, according to a report released on Wednesday by the New York Federal Reserve.
  • Home buying and refinancing took off last year after the Federal Reserve slashed its key overnight interest rate to near zero to fight the economic fallout from the pandemic, leading to lower mortgage rates. A massive shift to working and learning from home also bolstered the housing market, as some families searched for properties with more living space.
  • Credit card balances increased by $12 billion in the fourth quarter but balances were still $108 billion lower from a year earlier – the largest yearly decline since the report was launched in 1999.
  • In total, all household debt not related to housing – including credit card debt, auto loans, student loans, and other debts – increased by $37 billion during the fourth quarter but was still below pre-pandemic levels seen at the end of 2019.

Read the full report here.

Lipstick on a pig and recession-proof businesses

Lipstick on a pig and recession-proof businesses - Your Startup Guru
Lipstick on a pig and recession-proof businesses – Your Startup Guru

Welp, there’s no need to put lipstick on a pig. Today’s GDP data released by the US Bureau of Economic Analysis showed that real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.

Chart showing Real GDP: Percent change from preceding quarter

This is really bad news which means figuring out how to mitigate damage and making all adjustments by bootstrapping. Many businesses such as bookstores, farms, and clothing manufacturers pivoted their business models to adapt to the impact of COVID-19.

One thing I learned while working with my client KiloNiner several years ago is that pet products were largely recession-proof during the 2007-2009 recession. This is because people view their pets as family members so cutting back was avoided. There are many other businesses are that recession-proof as long as adjustments are made to accommodate social-distancing requirements:

  • Repair/maintenance services: People will still need their plumbing to work, their lights to turn on, and their car engines to run
  • Dry cleaning/laundry: Laundered clothing and materials will always be needed as long as people wear clothes and don’t have in-house machines. Dry cleaning for clothing might decline as formal wear is reduced but will not go away as people still wear jackets, etc. on occasion.
  • Professional services: Accountants, lawyers, and other administrative professionals are still needed for the economy to run.
  • Funeral/Memorial services: A natural consequence of life is death. Particularly with the unsettlingly high mortality numbers associated with COVID-19, demand will likely be high for a very long time.

There are many more industries and even sectors/value-chain-links within floundering industries that are somewhat insulated from recessions. Your Startup Guru provides industry/market research as well as a wide range of other services for businesses to help navigate this turbulent economic climate.

Contact us and let’s figure out a plan for you.

Old school business model

Old school business model

I just saw a commercial for Rent-A-Center and thought to myself that their old-school business model is nearly a half-century ahead of the times.

Founded in 1974, Rent-A-Center is an American public furniture and electronics rent-to-own company based in Plano, Texas. The company was incorporated in 1986 and, as of 2014, operates approximately 2,972 company-owned stores in the United States, Canada, Puerto Rico, and Mexico, accounting for approximately 35% of the rent-to-own market in the United States based on store count.

“A convergence of trends—including the Mari Kondo-sparked enthusiasm for cleaning out closets, increased concern over the impact of climate change, and a movement toward smaller, urban apartments—has made millennial consumers more conscious of how many items they’re accumulating.“

Rent the Runway CEO Jennifer Hyman.

As you may know, companies are taking a similar business model and expanding it to other consumer sectors, such as clothing and jewelry. This model has already been applied to transportation with Lyft/taxis/vehicle leasing and with housing with Airbnb/hotels/apartments and intellectual property with game rentals/public libraries. Entering into the fray are companies like Rent the Runway, which rents unlimited designer styles to subscribers, and Fat Llama, which rents electronics (in the UK).

A convergence of trends—including the Mari Kondo-sparked enthusiasm for cleaning out closets, increased concern over the impact of climate change, and a movement toward smaller, urban apartments—has made millennial consumers more conscious of how many items they’re accumulating, according to Rent the Runway CEO Jennifer Hyman.

The spending habits of millennials, the largest single consumer group out there with 83.1 million (a full quarter of the U.S. population), was surveyed. The survey found that the main reason why they rent is to “test things before purchasing” at 57%. This makes sense with money being tight and space being limited, every purchase has to be scrutinized. The results of the survey are shown in the infographic below:

World Economic Forum: This is how millennials are fueling the rental economy

Old-school brands such as Play it Again Sports and Rent-A-Center are riding the boom of the change in consumer sentiment and behavior. Rent-A-Center’s revenue grew $9M between 2018 and 2019 to $2.6B, operating income ballooned an astounding $197M between 2018 and 2019 to $253M, helping net income to increase by $165M to $173M.

Adaptability is the most powerful trait

You have probably noticed the deluge of advertising that is targeted to the new reality of being at home. This is obviously a response to the global pandemic we are all being affected by. The following is a breakdown of what is happening and how your business can harness the post powerful trait: adaptability.

Adapt Through Marketing Strategy Marketing

Aired prior to the COVID-19 crisis but replayed recently Campbell’s realized that people are stockpiling canned food. Set to a wholesome and nostalgic soundtrack without pandering to panic buying, they capitalized on an opportunity to remind customers of a classic pairing. On a side note, the music choice was oddly relevant — Thank You For Being a Friend was the theme song to the ’80s sitcom The Golden Girls and the elderly are among the most vulnerable to COVID-19.

Also, more people are telecommuting and are realizing their home computers might not be suitable for work so Dell aired a commercial for one of their newest laptops. Peloton, home office chairs, etc. are all advertising the benefits of being healthy and productive at home. Also, mental health app Talkspace, Delta Airlines offering free flights for medical volunteers, online education, bidets, and more are using this opportunity to advertise their products and services.

Adapt by Seizing the Opportunity

Adaptability Charles Darwin - Your Startup Guru
Attribution-NoDerivs 2.0 Generic (CC BY-ND 2.0)

When disruptions happen, it is important to consider alternatives in order to adapt to the new environment. I have advised a new restaurant client to pivot their business model from a brick and mortar location to a commercial kitchen or food truck and adjusted their ad hoc financial projection model to reflect the pivot. Of course, depending on the stage of a business pivoting to a commercial kitchen or truck is not an option; which is why I always provide tailored consultations to each client.

Many people have a lot of downtime now with not having to go into work. It is a good time to take a break from watching the news and start mapping out the idea that you’ve been mulling. Who is your target market? Where will you be located? What are your startup costs? These are all questions you should know the answers to or be actively seeking if you are serious about taking the next step. If you do not know the answers or want a second opinion on, I always provide free consultation so send me an email. Afterwards, those pushup challenges on social media are also a good healthy distraction too from all the dire news.

These are better practices than gouging prices like that hand sanitizer guy.

sanitizer price gouging guy

A lifeline for small businesses

COVID 19 Your Startup Guru

COVID-19 is devastating the world economy to a degree which caused circuit breakers in the US markets to halt trading twice and oil prices to plunge below $30 per barrel.  These macroeconomic tsunamis will cause waves to affect all aspects of daily operations for small businesses including closures, diminishing customer base, and supply chain disruptions.  However, there is some relief:

1.  U.S. Treasury to Help Advance Funds to Employers for Paid Sick Leave

Treasury Secretary Steven Mnuchin said his agency would advance funds to businesses so they can meet paid sick-leave requirements under a new House bill to combat the novel coronavirus.

In a statement late Saturday night, Mr. Mnuchin said employers will be able to use cash deposited with the Internal Revenue Service to pay sick-leave wages. For businesses that wouldn’t have sufficient taxes to draw from, the Treasury would make advances to cover the costs, he said.  Read the full article here.

2.  The Treasury Department is not your only option, SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance for a small business. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.

  • the U.S. Small Business Administration is offering federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).  Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.
  • Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available to small businesses and private, non-profit organizations in designated areas of a state or territory to help alleviate economic injury caused by the Coronavirus (COVID-19).
  • SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
  • Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities as well as updated on our website: SBA.gov/disaster.
  • SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.
  • SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
  • SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.

In order to get the process started to receive SBA’s Economic Injury Disaster Loans, contact Your Startup Guru here today

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