Profit Minded

4 tips for managing month-to-month money worries

Money, not managing, is the biggest stressor for small business owners, according to a new study. More than 60 percent of business owners surveyed reported increasing stress levels associated with running their business, 45 percent said they spend more time than they'd like to on money management, and one in three said managing finances is the number one source of that stress.

How can a small business owner minimize financial worries? We asked Jay DesMarteau, Head of Small Business and Government Banking at TD Bank, which conducted the survey. DesMarteau says creating a real-world financial plan whether you are just starting or have been in business for 20 years can help. Here, in part one of a two-part interview, he shares some basic tips for conquering month-to-month money management woes.

Anyone can take a DIY approach to setting up a financial plan, but you should also be able to get some free advice from an expert where you do your business banking. "It's not like you have to pay for this advice," DesMarteau says. There's one financial stressor off the list! Here are some more tips and tricks DesMarteau offers:

1. Create your own financial statement. The first thing any small business owner needs to get a handle on, DesMarteau says, is how your revenues compare to your expenses. "How does your overall income statement relate to your balance sheet?" he asks.

"Ask yourself, 'How much am I selling and what is my revenue compared to my expenses? How many of my expenses are variable—which ones go up with sales verses down with sales, and how many are fixed? And how much do I need to sell to be able to pay all my fixed costs?'" That information will help you to...

2. Figure out what kind of a reserve you need. On the balance sheet side ask, "When are the periods when the revenue will not cover expenses?" For those times, determine how much you need to have in cash reserves or in a line of credit. DesMarteau recommends doing that analysis on an annual basis and breaking it out by month. "Project what you want to see for the 12 months prior and 12 months going forward," he says.

3. Can you get paid faster to cover those gaps? Compare the terms of your collections versus those of your payments. DesMarteau says many businesses overlook this crucial trick for keeping enough cash on hand. Ask yourself, "How am I collecting payments from my customers?" Do customers pay you on 60-day terms while you pay employees and yourself weekly and your vendors on 30-day terms?

Determine if you can shrink that time between billing and payment from your customers. Can you get paid faster and still be at the market level for the industry or your competitors? If your competitors have 60-day terms, 30 days might be too short. But can you get cash at point-of-sale by accepting credit cards, PayPal, or anything else?

DesMarteau adds that, while it's much harder for a small business than a large one, it's worth asking whether you can take longer to pay your vendors.

4. Find out if you can get access to funds faster. When you deposit money in your bank, how quickly does that cash become available to you? Some banks will hold your money. Your $5,000 check won't clear for three days. DesMarteau says you should demand next-day availability, and even the ability to deposit a check on Saturday and have the funds on Sunday. (Of course, that's what TD Bank offers).

Next week: DesMarteau's advice for accessing capital through credit lines, loans, and refinancing.

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