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Varieties of Cash Flows

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By Debbie Gregory.

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Cash flows in and flows out. Cash flow is important and is a key indicator of a company’s health. As discussed in the previous article, cash flow is different from profitability. Cash flow measures the liquid assets on hand, while profitability relates more to the long-term expansion of the company.

Different types of income and expenses break into different categories of cash flow. We can break these down into (1) “operating cash flow,” (2) “investing cash flow,” (3) “financing cash flow,” and (4) “other cash flow.”

Differentiating types of cash flow helps businesses create a cash flow statement. These statements are important both for internal accounting and tax purposes. Each type of cash flow may require its own equation for records maintenance. These records are important for any company’s operations procedures, regardless of the company’s size.

  • Operating Cash Flow

“Operating cash flow” comes from a variety of sources. On the incoming side of the equation, “operating cash flow” might include the direct cash revenue from goods or services is one such source. Outgoing cash flow might be employees’ wages, purchase of supplies or equipment, utility bills, overhead, or payments on loans. Other types of operating cash flow, besides direct revenue, may include interest on loans and payments from lawsuits. The most common formula for “operating cash flow” is the following: Net Income + non-cash expenses + changes in working capital.

  • Investing Cash Flow

“Investing cash flow” may or may not be relevant depending on the size or operations of the business. Such cash flow may be incoming or outgoing.  Examples may include business acquisitions, insurance settlements, or loans originating from the business or business owner. Generally, the equation from “investing cash flow” is earnings from any investments minus any liabilities, such as loan payments or insurance liabilities.

  • Financing Cash Flow

“Financing cash flow” moves between owners, investors, and creditors. The owners themselves could move cash into the company from their own savings or other income sources. Aside from owners, investors or creditors may contribute to the financing of the company. Investors, for their part, could overlap with creditors, who could issue loans or other financial arrangements.

In consideration of the interests of investors and creditors, owners should consider the appropriateness of moving cash out of the company coffers, depending on circumstances. The most common formula for “financing cash flow” is the following:

Financing Activities Cash Flow = CED – (CD + RP). This formula could help a company issue a cash flow statement.

  • Other Cash Flow

Other types of cash flow might involve charitable contributions, earnings or costs for company events, or any variety of incentives for employees, assuming use for the company’s business purposes. Calculation methods may defer to the owner’s convenience and operations procedures.

  • Cash Flow Statements

The above four categories suggest methods of organization for cash-flow statements, for record-keeping purposes. Companies should issue a cash flow statement at least quarterly. The company’s management may use the above classifications at their discretion.  However, the statements themselves are necessary records for any company’s archives, both for outside requests and internal reference.

We hope that you have enjoyed this article and the prior one on profitability.   We work hard to bring our audience timely and important information.

We do not charge members any dues or fees.  If you are not yet a member of VAMBOA, please join here:   https://vamboa.org/member-registration/

Members may use our seal on their web sites and collateral and will receive special discounts and other important information.

Cash Flow and Profits: A Comparison

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By Debbie Gregory.

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Cash-flow and profit margin both relate to the health of a company. However, each term relates differently to the company’s bottom-line. Cash-flow is important to a company’s expansion and potential. Profit margin is a different concept that may relate more directly to the company’s bottom line.

Cash-flow governs the everyday workings of the company. Cash flow may come from any of a variety of sources, including the owner’s personal funds, investors, or loans, as well as revenue. Cash flow pays the bills, the employees, and the creditors in the short-term. Profits matter in the long-term, especially in the wake of large investments from investors or creditors.

For a smaller company with an independent cash flow, operations may continue for quite some time (or even indefinitely) before turning a profit, based on the enthusiasm and motivations of its operators. This is especially true with a home business. For a larger enterprises, profits must ultimately keep up with the cash flow. This is especially true when the original investors become creditors demanding payment.

So how do we more specifically define profits versus cash flow? “Profit” is basically the same as “net income.” Within a given period, your “profit” is your business revenue minus your expenses (including cost of providing products and services and overhead).

But how to manage cash flow? Assume a loan of $15,000, with a payment plan of $500 per month. That initial loan provides a healthy cash flow early in the history of the company, but the subsequent $500 per month will eat just that much into the profit margin.

Financial experts sometimes consider cash flow a better indicator of a company’s performance than profit margin. Cash flow affords better opportunities for growth. Cash flow may indicate better credit on the part of the company, and greater enthusiasm on the part of investors. By extension, the incoming monies may signal a brighter future for the company.

On the other hand, profit holds a different importance to the company’s bottom line and plans for expansion. A small side-business can emphasize profitability from the get-go, absent lofty ambitions. Smaller enterprises need not incur debt. Entrepreneurs with bigger plans must consider cash flow while they can maintain their company in the growth stage before reaching the critical mass necessary to generate independent profits.

A small business should consider maintaining a “cash flow statement” that details their periodic cash flow. These statements are called “free cash flow,” or “FCF” statements. In order to calculate your “FCF,” you should:

(1) calculate your operating cash flow

(2) subtract your capital expenditures

(3) on the chance that your company pays dividends, subtract your dividends, which are shares of profits paid to part-owners of the company.

Business owners should carefully monitor both cash flow and profits, for the sake of the progress of their company, as well as tax considerations. Cash flow could originate from an excited or generous relative, or a small business loan, or any of a variety of sources. Profitability depends on total revenue minus expenses, including negotiated payments to investors or lenders.

Profitability may indicate long-term success, but cash flow generally indicates engagement with the economy and a vibrant outlook for success. Healthy cash flow demonstrates that the company functions in the here and now. In many cases profitability may come afterward.

 

We hope that you have enjoyed this article and the prior one on profitability.   We work hard to bring our audience timely and important information.

We do not charge members any dues or fees.  If you are not yet a member of VAMBOA, please join here:   https://vamboa.org/member-registration/

Members may use our seal on their web sites and collateral and will receive special discounts and other important information.

Is Remote Work Here to Stay?

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By Debbie Gregory.

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The COVID-19 pandemic, with all the necessary social-distancing and isolation measures, has pushed businesses in almost every industry.   The pandemic has pushed businesses to allow some, or their entire, workforce to work remotely.

The various collaborative technology platforms such as Zoom, Slack, and Microsoft Teams have all seen a dramatic increase in users and a huge demand for their services. This increase in demand for these services is not likely to go away once the pandemic ends or abates. Among younger business owners and workers, remote working is being viewed in an increasingly positive light.

Earlier this year, 500 small business owners across the United States were surveyed about remote work and below are the findings of those surveyed:

A.) Small Business Owners are More Open to Hiring Remote Workers:

Currently about 55% of small business owners in the United States would consider hiring remote workers after the pandemic ends or abates. This is a significant increase from the previous year (2019) as only thirty-six percent would have considered it at that time

B.) Age Determines How Remote Work is Viewed:

Small business owners, aged 18-34, stated they have used remote workers in the past twelve months; Sixty percent would consider hiring remote workers in the future; Eighty percent or approximately one half of the small business owners aged 18-34 surveyed stated that they feel remote workers are more productive than on site office workers; while only thirty-five percent of small business owners aged 35-44 and a mere fifteen percent of small business owners aged over 65 stating remote workers are more productive than office workers.   Additionally, small business owners aged 18-34 also feel the quality of remote workers to be higher than office workers, forty-three percent as compared to sixteen percent of small business owners who are 65 or older.

C.) All Generations are Concerned About Remote Work Challenges:

All age groups surveyed agreed that working remotely comes with a great deal of benefits for both the employees and the employers. However, there were also a significant number of concerns about the challenges presented by moving the workforce from the office environment to the home.

Concerns such as:

  • Employees are being distracted
  • Employees spending too much time on personal matters during work hours
  • The ability to effectively manage employees remotely
  • Information safety and security
  • Technology requirements, service, and upgrades

D.) Most Small Business Owners (in all age groups) Were Already Working Remotely Themselves:

Even though the older generations of business owners are hesitant to allow their employees to work remotely, many were already doing it themselves. In fact, approximately sixty-five percent of small business owners work remotely. It is not surprising that younger business owners are more likely to be working from home, eighty-six percent; the older generations are not far behind with fifty-four percent working remotely.

As employers and employees alike experience the benefits of working remotely, more companies will inevitably decide to make this leap. In the future, once the pandemic has finally passed or abated, there will be a dramatic rise in fully remote companies without any physical workplace.  This will also dramatically change the commercial real-estate market especially in very high rent areas on both coasts.

Since so many VAMBOA members are working remotely, we want to extend to our members and friends, significant discounts up to 50% from our Dell, our technology partner.   Here is a link to check them out:

https://vamboa.org/dell-technologies/

Should you Allow Your Employees to Work Remotely?

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By Debbie Gregory.

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Due to the COVID-19 pandemic there has been a huge surge in both business owners and employees working remotely from home.

Small businesses in the Midwest are the least likely to hire remote workers while small businesses in the Southeast and Northeast are really warming to this trend. Regardless of what region of the United States that you operate your business, should you allow your employees to work remotely?  This is a challenging question to answer. To determine if a remote workforce would be best for your business, you have to consider the employee’s specific job duties, their ability to work effectively from home, and their ability to work securely from home.

Types of Things to Consider:

  • Is the employee safer at home than in your office?
  • Would your business benefit from lower overhead?
  • Does the employee have the equipment and technology at home to work efficiently and effectively? If not, are you willing to provide it?
  • Does the employee work with highly sensitive business data? If so, do you have security practices and solutions in place to safeguard that data when accessed remotely?
  • Does the employee have the tools to provide customer service or customer support?

If you choose to allow your workforce to continue to work remotely, you will need to put in place policies for how they will work, how you will manage them, and how you will deal with the challenges that arise.

What You Need to Work On:

  • Make sure you get your new remote work policies put into writing and distributed to your team so that everyone is on the same page.
  • Schedule and conduct regular check-in calls, video chats, or meetings to ensure everyone is working together.
  • Provide opportunities for remote social interaction. Even though you are not all working in the same location, team building and bonding is still very important. Schedule and conduct virtual happy hours, trivia contests, team luncheons, etc.
  • Make sure to deploy the correct technology to keep your employees connected and collaborative. Things such as video conferencing tools, instant messaging, office productivity technology, security, software, and more.
  • Also, take the time to assess how working remotely is working out for your staff. Schedule one-on-one talks and ask your employees how things are going for them and if they need more support from you.

While there are a lot of benefits of remote work for both the employee and the business, there are also a lot of concerns and challenges to address. We are all exploring new issues with productivity, boundary setting, and personal relationships. Employers are worried their workers at home are too easily distracted with everything going on in their home life. They worry they do not have as much control over their remote workers and they feel they are harder to effectively manage; even while they feel that the work-life balance for employees is the greatest benefit of remote working.

People were already adopting remote work; the pandemic simply accelerated the popularity of the trend and it seems to be growing significantly. More and more companies are looking to expand the remote team model and shift a large portion of their workforce to remote work for good. Since more employees now have the technology and equipment they need to work remotely, it’s easier for companies to offer that ability going forward.

Your small Veteran or Military Owned Business will need technology to effectively work remotely in this new normal.   VAMBOA members and friends are able to take advantage of end of the year savings from our Dell Technologies of up to 50 percent.  Check out these values here:

https://vamboa.org/dell-technologies/

A Message from VAMBOA’s CEO

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By Debbie Gregory.

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I think that we just need to move on to 2021 and leave 2020 in the rear window to fade away. This has been a challenging year for everyone, especially for Small Veteran and Military Business Owners.

We commend you for staying the course during these unprecedented times.   We have all had to adapt personally as well as professionally in how we operate our business.  Many of us are working harder and having to do more with less.  We are also doing things differently including working remotely and virtually creating and/or attending online events/conferences and training.  Many businesses have had to shut down physical operations and expand their online offerings.

VAMBOA, your Veterans and Military Business Owners Association works hard to bring you informative and timely information that will help your business.  We try to provide at least two or three new articles weekly on our Blog.  We hope you are not only enjoying the articles but are also gaining value from them.

We also try to provide you tips on the new skills needed to move your business forward as well as various loan programs that will provide you financial assistance.  Next year, we will be featuring and telling the stories of some of our members.  If you are interested in telling your story, please email me at:  info@vamboa.org.

I want to personally extend our sincere gratitude and thank our members, sponsors and those who have supported us during the year (you know who you are).   We appreciate you so very much.

This holiday season is unlike any other, to cap off a year unlike any one in our history Throughout this season, and as we move into a new (and hopefully better) year, we wish you moments of peace amid the difficulties, connections with family and friends even if they cannot be in person, the warmth of memories from holidays past, and wonderful glimpses of the joy that still lives under the surface.

Our holiday wish for each of you is health, happiness, and prosperity.   Hope is on the horizon with several viable vaccines and treatments for COVID 19.  Without health, none of us can prosper so please keep yourselves, your loved ones, and employees safe.

Acts of Kindness are important and rewarding to both the recipient and the giver.   You may enjoy this article on “Kindness Changes Everything.”

https://vamboa.org/?s=Kindness

Sincerely,

 

 

 

Debbie Gregory

CEO & Founder, VAMBOA (Veterans and Military Business Owners Association)

The “Go To” Association for Veteran and Military Business Owners

With over 8,000 Registered Members and almost a quarter of a million fans and followers

Membership is free – to join go to:  https://vamboa.org/member-registration/

Special End of Year Technology Discounts (up to 50% off) Only for VAMBOA Members & Friends: https://vamboa.org/dell-technologies/

 

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