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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.

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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/

Changing Business Trends for 2020

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By James Pruitt, Senior Staff Writer

  1. Emergence of Generation Z

These days, when we speak about young people, we increasingly refer to “Generation Z” rather than “Millennials.” Most news sources place “Generation Z” as born before “1995 – 2012.” Millennials are generally categorized as between 1981 and 1994. Generation Z has never known a world without the internet. They also grew up with smartphones and touchscreens.

Marketing to Generation Z is a work in progress, but businesses should emphasize social issues. This generation saw paradigm shifts in the way Americans relate politically, socially, and morally. The emergence of social media lurks deeper in younger peoples’ consciousness, although people in this age group certainly value face-to-face interaction. Politics changed, social life changed, and morality changed. Much went on-line. Mindfulness of these shifting trends is key to determining relations with this emerging group of people and how market to them.

  1. Wellness Issues

No one expected the events of 2020. The coronavirus epidemic has redefined the importance of self-care. Definitions of “social distancing” during the coronavirus epidemic develop rapidly. Considerations such as masks and social distancing have proven serious. A pandemic-era business must think long and hard about coronavirus-related issues.  Businesses have had to re-invent themselves within this new normal and many are embracing working remotely too.

However, emphasis on health and well-being in the workplace had been increasing for years before the current pandemic. Employers have increasingly prioritized self-care not just for the past year, but also for the past few decades. Relevant and sometimes tricky issues can involve increased awareness of mental health issues and their role when determining sick leave and relations with management. Also, technological advances such as cochlear implants continue to increase opportunities for people with audial, visual, physical, and other disabilities.

The ADA (Americans with Disabilities Act) forbids discrimination based on disability or perceived disability unless that disability relates to the job.

  1. Continuing Digitalization of the Economy

Managing your company’s internal cyber-affairs has certainly assumed new importance since the Information Age started. Employers can now carefully monitor the actions of their employees. For example, employers can monitor their employees’ activities and plan meetings or other activities accordingly.

On a related note, cybersecurity as a field has exploded since the first days of the internet. No shortage of scammers, hackers, and other imposters may haunt your computer systems despite the best firewall.

  1. Mobile Devices are Increasingly Relevant in Business

Mobile devices are a relatively new yet versatile addition to the business scene. Bosses may contact on-call workers far more efficiently than in previous decades.

Another use for mobile devices is “geo-tracking,” which permits advertisers to target customers geographically close to their business. Another solution is to develop an app that shares promotions with interested customers.

  1. Monetary Transactions Become Increasingly Electronic

The trend continues. We are in fact moving toward an increasingly cashless society. The pandemic will likely greatly increase this trend. Small businesses should consider a wide variety of options for customer payment. However, it is notable that cash-free businesses remain controversial. For example, New York City passed a bill in January to make such businesses illegal

VAMBOA, the Veterans and Military Business Owners Association is pleased to announce that James Pruitt will be contributing articles to our blog as a Senior Staff Writer.  James Pruitt is an independent copywriter and editor specializing in legal and health-related issues. He received his master’s from the University of Chicago and his bachelor’s from UC Berkeley. He currently resides in Thousand Oaks, where he pursues his passions in gardening, cooking, and spoiling his mixed Maine Coon cat, Russell.

Increasing Your Business

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By Debbie Gregory.

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To grow your Small Veteran Owned Business, you must get out the word and grow your business to new potential customers.   This means you need to focus on marketing and more marketing.   This article will help you evaluate ways to attract new customers to your business and retain and engage your current customers.   There are a multitude of marketing channels available today and one or all of them might be a good fit for your business.

Email Marketing:

Email marketing is both effective and an inexpensive way to reach new and existing clients.   It requires a solid list of contacts and engaging content.   The content can tell your story and include special discounts, coupons, tips, and important information that concerns your market.

Work on building a list of contacts by capturing the email addresses of your clients, referrals, and business colleagues.   You can build this list from asking customers to fill out or register on your website or blog, live and industry event and subscriptions.   It makes sense to offer those that register value too.  Keep those on your list engaged by sending them emails regularly with a concise and strong subject line or call to action that tells those receiving your email your message.   Always include something of value in your message such as valuable information or discounts.

There are excellent email services available that are fairly cost effective to assist you.   These services will help you design, compose with content, and deploy your emails.  Additionally, they will help you manage your contact lists and view the results of your emails to learn what works best. Some of most popular services include iContact, Constant Contact, MailChimp, AWeber and GetResponse to name a few.

Direct Mail:

Direct Mail should be included on the list although it can be much more costly than email marketing.  Direct mail includes catalogs, postcards, flyers and can help build the identity of your brand and business.  Printed materials are something more tangible and will get attention since as they are mailed.  You will need the snail mail addresses of your customers and potential customers.  You can use your own list and/or supplement it by renting a list from a direct mail vendor.

Social Media:

Social media is an excellent way to truly engage your customers and potential customers as well as learn their preferences. There are five major social media platform and they include:

  • Facebook that has over one billion users and allows you to post, invite and use targeted ads. Many feel that Facebook can provide the biggest bang or return on investment.
  • Twitter is a huge platform that allows you to share ideas, information, and insights concisely with a limit of 140 characters.
  • LinkedIn is a professional networking site that enables you to connect with other businesspeople and post insights and join like-minded professional online groups that will increase the reach of your business.
  • Instagram is visual and you can share images, photos, and videos to showcase your product line and/or service.
  • Blogging is an effective way to tell the story of your business and share your products and expertise.

It does not matter if you use one or all of them.  It is important to post regularly, respond to comments, complaints, and inquiries and really listen to what prospects are telling you online.

Advertising:

This is one of the most effective methods to let potential customers know about your business.   It can be expensive, so it is imperative to plan carefully and identify your target market to time and place ads in the best venues for your needs.  Place ads where your customers go for information on the products and services that you offer.  Print ads are very expensive, and you may wish to consider digital ads that are much less costly and reach a larger audience.  Some options for digital advertising include Facebook, Twitter, LinkedIn and pay-per-click ads.

Some free advertising to consider and claim are online directories including Yelp and Google Plus. These reach a huge audience and the best part is they are free so be sure to complete your business profile and ask satisfied clients to post positive reviews.

Strategies for After Holidays Business Lulls

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By Debbie Gregory.

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Once the holidays have officially ended, most small businesses face a significant drop in business. Generally, people are on vacation or saving to recover from their holiday gift spending from the middle of December through January.

 

Preparing for this lull in business can be challenging.   There are a few strategies that can help minimize the negative impact of the drop in sales and revenues. Below are a few ideas to help you save some money and possibly minimize the negative impacts of a slow business season:

 

Increase Social Media Posting:

Increasing your social media presence is always a great place to start when your business needs a boost. Social media is incredibly effective for reaching potential customers in your local area as well as helping you build overall brand recognition and trust.

 

Implement New Marketing Strategies:

If you are experience a slowdown in business, this might be an excellent time to re-evaluate your current marketing strategies to determine what has been and what has not been effective. Cut out any ineffective strategies and move forward with new ideas.

A few ideas to consider:

  • Improve or update your company website’s overall SEO (Search Engine Optimization)
  • Start new pay-per-click campaigns on social platforms or search engines
  • Start attending in-person marketing events
  • Sponsor relevant local events

 

Eliminate Any Unnecessary Expenses:

The start of the year is also a great time to review where your money goes and cut out any unnecessary expenses. This includes cutting out ineffective marketing programs that was addressed previously as well as reducing spending on office items that aren’t necessary as well as holding off hiring. Saving money is one of the best ways to help you bounce back from a lull in sales.

 

Revamp Your Pricing:

If you lowered your prices to be competitive and attract more customers before the holidays, this is the time to consider what your pricing strategies going forward now that the holidays are over.  Most small businesses simply go right back to their standard pricing but this might not be the best option if you still have a lot of holiday inventory on your hands. Consider staggering your price increases to sell off your surplus inventory.

 

If You Took Out a Loan Now is the Time for a Reasonable Repayment Plan:

If your business was one of the many that needed to take out a loan to have adequate cash flow through the holidays, now is a great time to establish a reasonable and affordable repayment plan with your loan provider.

 

The holiday season is always challenging before, during and after for a variety of reasons and this is especially true for small businesses. If you find that you are struggling to recover from the holidays you should seriously consider one or more of the above strategies to help you get back in your groove and recover.

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