Let’s explore the fundamentals of cash flow management together so you can confidently make better decisions and have sustainable success. 

What Is Cash Flow?

Cash flow is the movement of money into and out of a business over a specific period, typically monthly, quarterly, or annually. It allows you to cover expenses, invest in growth, and stay afloat. Understanding cash flow involves tracking incoming cash from sales, investments, and other sources and outgoing cash for expenses like rent, payroll, and inventory.

Myth: High Revenues and Profits Mean No Cash Flow Problems

It’s a common misconception that high revenues and profits automatically translate to smooth cash flow. However, this is not always the case. A business can be profitable on paper but face cash flow challenges if finances are not managed effectively. For example, suppose a significant portion of your revenue is tied up in accounts receivable or inventory. In that case, you may find it challenging to meet immediate financial obligations despite having healthy profits.

Did you know that borrowing money can be a great business move, even if you have high revenue? When done right, it can allow you to invest in things like inventory or equipment without restricting cash flow. 

Revenue vs. Profit: Understanding the Difference

Revenue represents the total amount of money generated from sales of goods or services. It’s the top-line figure that reflects your business’s sales performance. On the other hand, profit is what remains after deducting expenses from revenue. It’s the bottom-line figure that indicates how much money your business earns. While revenue is crucial for growth, profit ultimately sustains your business.

Factors Impacting Cash Flow

Several factors can impact your cash flow, including:

• Sales and Collections: The timing of sales and when customers pay their invoices significantly affects cash flow.
• Expenses: Managing expenses such as rent, utilities, and payroll is crucial to ensure they align with your cash flow.
• Investments and Financing: Cash flow can be influenced by investments in equipment or expansion and loans or financing arrangements.

The Importance of Cash Flow Planning

Cash flow planning helps small business owners anticipate and manage fluctuations effectively. A cash flow forecast predicts future cash inflows and outflows, allowing you to identify potential shortages or surpluses ahead of time. By proactively planning your cash flow, you can make informed decisions about spending, borrowing, and investing to optimize your financial position.

Some business owners start cutting back on expenses when cash flow is tight. This can be a mistake, especially if one of those expenses is a financial advisor. In our blog post, Learn About the Costly Mistake Business Owners are Making, we discuss how the right financial advisor can help you increase and sustain healthy cash flow. 

Payment Terms and Cash Flow Management

Cash flow management is affected by the payment terms you establish with your customers. Offering extended payment terms or allowing customers to pay on credit can delay cash inflows, impacting your ability to cover immediate expenses. Business owners have to strike a balance between attracting customers and maintaining healthy cash flow by implementing clear payment terms and actively managing accounts receivable.

Understanding Your Cash Conversion Cycle

An integral part of cash flow management is knowing your cash conversion cycle. This metric measures the time it takes for cash to flow in and out of your business—from purchasing inventory to receiving customer payment. By optimizing your cash conversion cycle, you reduce the amount of time your capital is tied up in inventory or accounts receivable, improving overall cash flow efficiency.

Feeling confident about your grasp of cash flow basics? Test your knowledge with this BDC quiz and see how well you understand the principles of financial management! 

The post Understanding Cash Flow: A Guide For Small Business Owners in Canada first appeared on Acuity Business Group.

That’s why we have compiled our best tips to help you navigate securing a business loan. Read on to discover how you can turn financial challenges into opportunities for success. 

Craft a Winning Business Loan Request

To create a compelling loan request, begin by presenting a powerful prospectus. Condense your business or project details into a concise document that clearly articulates the purpose of the loan and how it aligns with your overall business strategy. 

Showcase your commitment by highlighting your financial contribution and capacity for future reinvestment. This demonstrates dedication and reduces the perceived risk for the lender.

Check out our guide on how to write an effective business plan for tips and inspiration. 

Establish Credibility 

To alleviate lender concerns, understand and address leverage, liquidity, profitability, and activity ratios. Familiarity with your company’s financial ratios is crucial for a credible loan application.

Support your loan request with robust research and evidence. Focus on presenting one project, avoid industry jargon, and ensure your proposals are grounded in realistic data.

Master Your Credit History

Maintaining a stellar credit history is crucial. Regularly check personal and business credit scores for errors and to understand your current status. Use these scores as a tool for improvement, implementing practical tips like timely bill payments and paying down debt.

Scrutinize Lenders’ Terms

Beyond the interest rate, delve into the terms and conditions offered by various lenders. Flexibility and optimization should be prioritized over mere cost considerations. This strategic approach ensures that the chosen loan aligns with your business needs.

When exploring financing options, ask questions about loan terms, percentage financed, repayment flexibility, and collateral requirements. A comprehensive understanding of these factors helps you make an informed decision.

Deal with Challenges Transparently

Confronting financial challenges is inherent in entrepreneurship. Transparent communication is key—keeping stakeholders informed, presenting a detailed recovery plan, and involving them in decision-making fosters trust and collaboration. 

Acknowledge mistakes, anticipate challenges, and maintain a positive outlook. This transparent approach transforms hurdles into opportunities for growth and reinforces your commitment to long-term success.

Conclusion

Securing a business loan is a pivotal step toward achieving entrepreneurial success. This expert advice will help you confidently navigate the loan application process. We have even more information about how borrowing money can be a great business move and how to do it right in this blog post.  

If you’re thinking about buying or growing a business, get in touch to find out how we can help! 

The post Successfully Navigate the Business Loan Landscape first appeared on Acuity Business Group.

In this step-by-step guide, we will walk you through each section of a business plan and provide valuable tips to help you write an effective plan that stands out and inspires confidence from potential lenders.

The Importance of a Business Plan

A well-structured business plan serves as a roadmap, outlining your goals, strategies, and vision. It provides direction and clarity, ensuring everyone in your business is on the same page and working towards a common objective.

Externally, a comprehensive business plan impresses investors and lenders by showcasing your professionalism, market analysis, and financial projections. It instills confidence and increases the likelihood of securing funding or partnerships.

Internally, a business plan aligns your team, providing a solid foundation for decision-making and action. It forces you to critically evaluate your ideas, market potential, and financial feasibility, ensuring you are well-prepared to overcome challenges.

Executive Summary

The executive summary needs to be compelling in two ways; it should grab attention and provide a concise overview of your business plan. Use this section to effectively communicate your unique value proposition and outline the key points that will entice potential investors or lenders to dive deeper into your plan.

Pro tip: Craft a captivating opening sentence that hooks readers from the start.

Company Description and Vision

Tell your readers a story about your company that includes its history, mission, vision, and values. In your company story, showcase your products or services, define your target market, and highlight your competitive advantage. This section of your business plan should capture the essence of your business and demonstrate your understanding of the market landscape.

Pro tip: Clearly define your target market and address a specific need or problem that your business solves. Show how your unique value proposition sets you apart from competitors.

Market Analysis and Strategies

In this section, you dive deeper into the market landscape by identifying your target audience, assessing competitors, and analyzing industry trends. Share your marketing and sales strategies, the reasons why you’ve chosen them, and the success you’ve already had. Providing data-driven insights and actionable plans demonstrates your market expertise.

Pro tip: Conduct thorough market research to identify emerging trends, customer preferences, and potential growth opportunities.

Organization and Management

When presenting a business plan to investors, it is important to showcase the people who make up the company. Introduce yourself and your management team, and highlight relevant qualifications and experience. To help people have a better understanding of how the company works, include a clear organizational structure, and define roles and responsibilities. Showcasing a capable leadership team instills confidence in investors and demonstrates your ability to execute your business plan effectively.

Pro tip: Emphasize your team’s ability to drive the company’s success and showcase any unique skills or expertise that differentiate your team.

Product or Service Offering

Now is the time to delve into the specifics of your products or services, highlighting their unique features, benefits, and pricing. Clearly outline your value proposition and address customer pain points. If applicable, include details on your production processes, technology, and intellectual property to showcase your operational capabilities.

Pro tip: Highlight the unique features and benefits of your product or service, but also focus on the emotional appeal it brings to customers. Clearly articulate how your offering solves their pain points or improves their lives. By emphasizing the emotional connection, you grow stronger brand affinity and differentiate yourself from competitors in a meaningful way.

Sales and Marketing Strategies

This is a key section of your business plan because, without sales, your business will not be successful. Outline your sales and marketing strategies, including customer acquisition plans, pricing models, and promotional activities. Add a comprehensive marketing plan that aligns with your target audience and differentiates your business from competitors. Be sure to highlight key metrics and milestones you will use to measure success.

Pro tip: Craft engaging narratives that showcase the value of your products or services and demonstrate how they solve customer problems. Incorporating storytelling techniques into your marketing strategies helps you create a memorable and impactful impression on potential investors and lenders.  

Financial Projections and Funding Requirements

Investors and lenders will be very interested in this financial information. Objective and realistic financial projections, including sales forecasts, income statements, cash flow analysis, and break-even analysis should be included in this section. Be sure to justify your assumptions and demonstrate financial viability. Present a clear understanding of your funding requirements, showcasing your plans for utilizing investment or loan proceeds effectively.

Pro tip: Provide a well-supported explanation of your financial projections, demonstrating a thorough understanding of your industry’s trends and market conditions. Incorporate key performance indicators (KPIs) and benchmarks to track your progress and demonstrate your ability to achieve sustainable growth.

Risk Assessment and Contingency Plans

Risk is part of any business venture and should be tackled head-on, not swept under the rug until it can’t be ignored. Identify potential risks and outline strategies to mitigate them. By anticipating challenges and developing contingency plans, you will maximize your risk management capabilities and be prepared for potential hurdles.

Pro tip: Conduct a comprehensive SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis to identify potential risks and develop robust contingency plans. Show that you have considered various scenarios and have strategies to mitigate risks, ensuring your business’s long-term stability and success.

An effective business plan requires careful thought, research, and attention to detail. By following this comprehensive guide, you will be well-equipped to create a compelling business plan that captures the attention of potential investors and lenders. Your plan also serves as a roadmap for your business’s success.

Start writing your winning business plan today and pave the way for a prosperous future!

The post Mastering the Art of Writing an Effective Business Plan: A Step-by-Step Guide first appeared on Acuity Business Group.

• Increasing inventory to meet demand,
• Purchasing equipment that is more efficient or that operates at a higher capacity, and
• Moving into a new location with more space or increased foot traffic.      

A good business loan offers flexibility, allowing business owners to use it to meet their business goals.  However, borrowing money is never without some risk.  To maximize the positive impact of a business loan, there are three mistakes that you need to avoid.

1.            Not borrowing enough money

This one sometimes confuses people.  Isn’t it better to have a smaller loan amount to minimize the total cost?  Not always.  You need to borrow enough money to have an impact.  Take the time to determine how you will use the additional funds and calculate the amount needed to achieve those business goals.  Then, put together a cash flow forecast and include potential contingencies and delays.  This can help you more accurately calculate how much money you need to turn the loan into profits.  If you skip this step and don’t borrow enough, you risk getting caught with a loan repayment that didn’t generate additional revenue.

2.            Not understanding the value of loan repayment terms

The first thing most people look at when taking on a loan is the interest rate.   The interest rate is important because it affects the total cost of the loan, but it isn’t the only thing to be considered.  Working together with your accountant and loan officer, look for ways to optimize aspects of the agreement like

• The repayment schedule,
• Loan length,
• Flexibility for seasonal payments,
• Interest-only options, and
• The guarantee terms. 

3.            Paying back the loan too quickly

Business owners love to get loans and debt off the balance sheet and often accelerate loan repayments to do so.  Sometimes, paying it back too quickly doesn’t make financial sense.  The first reason is that there may be a penalty for completing the loan repayment before the agreed-upon date.  The second reason is that by doing so, you may expose your business to a cash flow shortfall in the event of low revenue or unexpected expenses.  The third reason is that without access to the additional capital, you may miss out on the opportunity to take action that can help increase the business’s overall financial health. 

Loans are a significant commitment for small businesses and should be treated accordingly.  While a loan is considered a financial liability, it has the potential to add real value and improve the bottom line.  If you think your business would benefit from a loan, start by talking to your accountant and a loan officer to learn more about your options and crunch the numbers. 

The post Borrowing money can be a great business move (as long as you do it right) first appeared on Acuity Business Group.

Background

In summer 2019, I began working with a retail store owner who specialized in women’s fashion and accessories.  This was an established business with a strong, consistent revenue history and plenty of growth opportunities.  Before the pandemic, the business listing had received over 40 inquiries.  In March 2020, the world changed and businesses had to quickly figure out how to adapt.  That process alone was stressful enough for many but it added another layer of complexity for business owners who were trying to sell their business.  As the pandemic began having significant impacts on retail businesses, the owner and I strategized and found ways to successfully grow and sell the business.

Key achievements

The business owner quickly realized that the retail landscape was changing and if the business was to sell, it needed to change too.  Since brick and mortar retail was significantly impacted by public health measures, the business owner pivoted to online sales.  She created an online store and let people know it was open and ready for orders.  The business already had an established email list of over 3000 customers that had proven itself to be one of their most effective marketing tools.  The list had a low unsubscribe rate.  In pre-pandemic times, the first morning after an email campaign often saw a lineup at the front door of the store.  Using a combined online advertising strategy of email campaigns and social media posts, the business owner was able to let customers know how they could continue to shop at one of their favourite stores.  The business optimized the online shopping experience and delivery options for their customers while finding ways to manage their cash flow and keep the business viable.

Challenges overcome

Growing and selling a business during unprecedented times came with many challenges.  In addition to lost revenue from the physical retail location, there were other barriers to success that were not typical of a business for sale transaction.  All the involved parties were forced to move their communication online via email and Zoom meetings.  While these tools can help the process to move forward, there are times when a face-to-face meeting can be far more productive and efficient.  Verbal and non-verbal cues, as well as nuances in communication, are often lost when working virtually.  This can lead to misunderstandings and miscommunications.  We had to double our communication efforts to ensure the process continued along a forward trajectory.

As the transaction progressed at arm’s length due to the physical restrictions in place, it was sometimes difficult to keep other parties on track with timely responses to emails and overall communication.  This required constant follow-up to meet important target dates for the buyer and seller.

Lessons learned   

The two biggest lessons learned during this transaction were about being prepared and learning to adapt.

The business was already well prepared for a new owner when it was first listed.  Documentation, records, and financial statements were accurate and up to date.  Being prepared gave the owner two advantages.  First, it created a level of transparency that inspired confidence and trust from the buyer.  Second, it freed up the owner to focus on continuing to run and grow the business throughout the entire time it was on the market.  Ultimately, this focus resulted in new growth and a successful sale.

For all parties involved, a willingness to adapt catapulted the transaction to a successful close.  The original business owner was able to quickly pivot the business to include online sales, which increased overall profits and proved the viability of the business model.  Other parties adapted to different forms of communication and came to the table prepared to move forward in a safe and timely manner.

Running, growing, and selling a business during a pandemic can feel tough but we know it is possible.  Being prepared to adjust to things like restrictions, ways of doing business, and how we communicate is an important first step.  Also, having a certified business intermediary on your team can help keep the transaction moving forward even when things seem impossible.  We know the business landscape will continue to look a little different in 2021; regardless, you can still enjoy a successful business for sale transaction!  If you are thinking of selling your business this year, please give me a call so we can talk about your goals.

The post How one owner grew and sold her business during the pandemic first appeared on Acuity Business Group.

Determine the overall business objective

In order to find the right business to buy, owners need to know their overall objective for the acquisition.  Is it to increase market share?  Does the business want to add new products?  Is it time to enter a new market?  Some business owners may feel ready to buy a new business but are unclear on what their objective is.  There are few things owners can do to figure this out.

• Review the existing business plan to determine where an acquisition would help in achieving more growth.
• Determine what areas of the existing business could be further strengthened.
• Determine where economies of scale could be improved by purchasing another business.

This can be a challenging process.  One way to determine the right objective is to work with a Certified Business Intermediary who has experience in helping companies to grow by acquisition.

Put together an acquisition plan

Most businesses have a general plan in place when they are looking for another business to buy.  This isn’t enough.  Successful acquisitions are guided by a strategic plan.  According to a recent report from Business Development Canada, “companies that followed a structured acquisition process were 94% more likely to experience high revenue growth after the acquisition”.  The acquisition plan should be drafted before the owner even glances at a business for sale listing.  The acquisition plan is important for internal and external stakeholders and keeps all involved parties focused on

• The objective for the purchase,
• The timeline and budget, and
• Individual roles and responsibilities.

In addition to providing the framework for the initial stages of the acquisition, the plan should also include a strategy for making an offer on a business, the ownership transition phase, and developing a target operating model for moving forward.

Work with acquisition experts

Buying another business is a complex transaction that requires a great deal of forethought, planning, and strategy.  Business owners should have an experienced team of acquisition experts in place.  The right acquisition team will be there from the initial stages, when the business is determining the objective for the purchase, through to the post-merger integration.

Professionals that will help an acquisition be successful, both initially and over the long-term, include

• Certified Business Intermediary,
• Financial advisor,
• Accountant, and
• Lawyer.

It is important to seek out professionals that have recent experience in facilitating acquisitions, which means business owners may need to look beyond the professionals they have existing relationships with.

Strategically purchasing another business is a great way to grow but only if it is done correctly.  Consulting with a qualified business broker at the beginning of the process is the best first step a business owner can take.  Contact Acuity Business Group today to learn more about how we can help!

The post Tips for buying another business first appeared on Acuity Business Group.

Managing expenses

This might sound obvious but many business owners overlook this important financial chore.  Managing involves more than saving on office supplies.  Business owners can save a significant amount of money by doing things like negotiating better lease terms, streamlining processes, and improving overall operational efficiency.  These efforts take time and sometimes require an outside expert but can make a real difference to the bottom line.

Maximizing current and potential markets

Business owners can create some insulation from boom and bust cycles by having a good understanding of how to serve their current market and how to tap into additional markets.  Strategies like increasing market share, getting into new markets, and diversifying offerings can help a business to grow even during difficult times.  These strategies are available to all businesses, regardless of industry or niche.

Responding to changing market conditions

Many business owners understand when changes are occurring that affect their market but do not alter their business model or offerings in response to it.  Adapting to market conditions can help keep a business moving forward when others are stagnating.  Responding to changing market conditions can include things like changing product or service offerings, moving the business to a different location where the ideal customer will be more likely to continue visiting, or expanding online offerings.

Continuous marketing

Businesses should have a solid and consistent marketing strategy in place to ensure that new customers can find them and previous customers don’t forget about them.  Marketing should include more than just social media posts.  Doing things like networking with other businesses, offering promotions, and keeping in contact with customers can be highly effective and financially rewarding.

No one ever said that running a business would be easy.  Even in challenging economic times, it can be done successfully.  Business owners don’t have to do it alone.  Working with a professional, like a Certified Business Intermediary, can be a great way to identify strategies for improvement and provide a blueprint for execution.  Contact us today to learn more about services that will help you grow your business.

The post How to thrive when others fail first appeared on Acuity Business Group.