Archive for the ‘small business cash flow’ Category

Online transactions and online banking are the mainstays of modern business

Online transactions and online banking are the mainstays of modern business

In the last couple of years a steadily growing preference for online banking has been witnessed. An ever-growing segment of small business owners and indeed the general population now seldom has to visit local brick-and-mortar branches to do its banking.

Thanks to advances in technology, banking has become increasingly accessible. Tools like apps, direct deposit, online account management and ATMs have been instrumental in helping to make the banking experience more convenient, flexible, cheaper and less complicated.

Nevertheless, not all banks with online presences are worth doing business with. Again, there’s a lot more to think about than no-fee services and how high the annual percentage (APY) yield offered is.

What therefore should you consider when selecting an online bank?

1. Credibility

Make no assumptions; be sure your bank of choice is legitimate. Genuine banks have secure websites and are insured by the FDIC.

2. Banking limits

You need to find out what the caps for withdrawals and deposits are and whether or not these will work for the types of amounts you routinely transact.

What, for example, is the mobile deposit cap at the bank you are considering? Will this figure suffice for the check amounts you regularly need to deposit? If not, you’ll probably be better off finding another bank.

3. Cutting-edge security

While losing money is quite impossible thanks to the backing that organizations like the FDIC provide for online banks, the real concern has to do with data compromises. You must therefore opt for a bank that has put effective measures in place to forestall the threat of personal information exposure and sharing.

Find out how well your personal and banking information is protected...

Find out how well your personal and banking information is protected…

Such an online bank’s website will typically be protected by multiple safeguards and firewalls, coupled with fraud alerts and intrusion-detection monitoring. You also want to find out the Secure Socket Protocol (SSL) you’ll be using to access your account. Industry standard 256-bit SSL encryption guarantees highly secure transmissions with regards to personal data and online transactions.

4. Account set-up

You probably assume that opening an online account is easy everywhere.

It isn’t.

Many customers have in their reviews about online banks expressed how difficult it was to get going at their respective banks. Absurd requirements and copious documentation are the typical tell-tale signs of such banks.

In such a case simply find another bank where all that’s required is your personal information, and checking and routing numbers of an existent bank account.

5. ATM network

There should be enough ATM facilities in your vicinity

There should be enough ATM facilities in your vicinity

If you regularly need to withdraw cash make a point of choosing a bank that has a lot of ATMs in your vicinity, not too far off. It is also a good idea to scour the market for banks that refund all ATM fees monthly.

6. Fees and payments

Conventional banking is characterized by an assortment of payments including ATM, service, overdraft and monthly fees, and the amounts can be quite considerable. Online banks, on the other hand, generally tend to keep fees at a minimum for chargeable services.

A look at the fine print will let you know what you can expect to pay for monthly maintenance, low balance penalty, check writing, transfers to outside banks, customer service calls, etc.

7. Customer support

It is important to know to what lengths your online bank will go to make your banking experience convenient. Some of the pointers to check out for here include 24/7 telephone customer service, live chats, online bill payments, online calculators, real-time customizable account alerts, and a checking account product.

Effective customer care makes online banking so much more convenient...

Effective customer care makes online banking so much more convenient…

Find out what to expect at your bank from comments people have made on social media and from websites such as Consumerist. The FDIC website’s Bank Find feature will provide you with specific information about the bank you have in mind.

8. BauerFinancial ratings

You ideally want an online bank that has a rating of three and above on the Bauer scale. BauerFinancial has for 32 years independently analyzed US banks and credit unions performance. From these ratings you can make a comparison of how well or poorly a certain bank is performing in relation to the others.

Counterfeiters are so good nowadays, it's almost impossible to distinguish between originals and imitations...

Counterfeiters are so good nowadays, it’s almost impossible to distinguish between originals and imitations…

Counterfeit goods are also known as imitations. They are products that are manufactured and sold under another company’s name and without permission from that company. Today, the counterfeiting problem affects virtually every industry. Commonly counterfeited goods include car parts, electronics, personal care products, handbags and wallets, computers, shoes, jewelry and clothes. There are even imitations for medication.

Counterfeiting is big business around the world. It is estimated that $700 billion worth of fake merchandise is produced every year. Losses incurred in the U.S. as a result of counterfeit trading are estimated at $1 trillion annually and in excess of 75000 jobs. The Organization for Economic Co-operation and Development (OECD) has estimated that counterfeit trading may cost the global economy as much as $250 billion every year.

Closely associated with counterfeiting are two similarly despicable practices – tampering and diversion. Tampering involves altering of product ingredients. The consequences can be lethal. In 1990, for instance, 89 children in Haiti died after ingesting pharmaceuticals laced with antifreeze.  Diversion, on the other hand, involves the selling of a manufacturer’s product via an unauthorized seller or channel.

What risks does counterfeit trading pose for your business?

Well, in addition to lost revenues, counterfeits can potentially ruin your business’ reputation and erode its goodwill.

So, what are the various techniques that you can employ to fight the counterfeiting menace?

1. Registering your trademarks

Federal trademark registration is a vital aspect of brand protection. Doing this will enable you to enforce your trademark anywhere around the country. You will also get access to federal courts. You should also ensure that your trademark is registered in all countries where you do business. Foreign registration can assist in stopping the exportation of counterfeits that bear your trademarks.

Registering your intellectual property will help you to enforce anti-counterfeiting measures legally

Registering your intellectual property will help you to enforce anti-counterfeiting measures legally

2. Registering your trademarks with customs agencies

Your trademarks should also be registered with customs agencies, both locally and in countries where you do business. The U.S. Department of Customs and Border Protection (CBP) runs the Intellectual Property Rights (IPR) Enforcement program tasked with preventing the inflow of counterfeit merchandise into the country. Based on the information you have provided, the CBP will be able to curb the trade of counterfeits as it carries out its shipment monitoring mandate.

3. Investigating the market

As a proactive business owner you should regularly monitor the market to ascertain that what is being sold as your merchandise is actually genuine. Regardless of where you sell your products, online or through brick-and-mortar retailers, three factors should be able to inform your curiosity: price, packaging, and location.

You should regularly scour the market to see if imitations of your brands are being sold

You should regularly scour the market to see if imitations of your brands are being sold

Don’t hesitate to take immediate enforcement action in the event that counterfeit goods are found. Pursuing civil litigation will send out a strong deterring message to other potential sellers of counterfeits.

The following are some of the legal measures and settlements you (the plaintiff) can demand of a person (the defendant) caught selling imitations bearing your trademark:

  • Monetary compensation
  • A recall of the counterfeits sold
  • Ongoing audits of the defendant’s inventory and records
  • A permanent injunction preventing the defendant from importing and selling imitations

To practically distinguish your products from counterfeiters’ merchandise you can employ the following technological defenses:

4. Placing brand-specific patterns on clothing

The use of a partially invisible thread to produce brand-specific patterns on fabrics can help clothing manufacturers to identify and nab counterfeits. The thread used for this purpose is produced cheaply but is not easily reproduced. The customized patterns made with the thread are only visible under special lighting.

5. Using iridescent security images

Courtesy of Nanotech Security it is now possible to emboss a security image of your choice on your merchandise. This image can be applied on a variety of surfaces, ranging from metals to fabrics. This anti-counterfeiting measure will set you back a few pennies per unit. For counterfeiters, however, replicating your security image will be quite impossible.

6. Adding pigments to plastics

You can also opt to include custom additives or pigments in the plastics that your company produces or uses. Being specific to your company, these additives, and which can easily be identified with the help of a handheld device, will help to separate genuine merchandise from market imitations.

7. Using the uFaker app

With the help of the uFaker app you can be able to monitor counterfeiting activities that involve your brand. This information can then be forwarded to law enforcement agencies, private investigators and lawyers.

8. Using the Authenticateit app

You can use the Authenticateit smartphone app to identify, track and deter counterfeiters from selling imitations. Consumers can use the same app to ascertain the authenticity of a product prior to making purchase.

9. Using the Black Market Billions app

Yet another useful solution is the Black Market Billions crowdsourcing app. Users use the app to take photos of possible imitations and upload the images to an online map linked to a GPS locator. Alerts are then sent to consumers of counterfeited merchandise in specific locations.

10. Consumer education

Providing consumers with information about your product will help them to make informed purchases and effectively protect them from the risks of using imitations.

Effective education will help consumers to identify and buy original merchandise

Effective education will help consumers to identify and buy original merchandise

You can use various websites to share information about your product and where genuine merchandise can be purchased. These sites include:

DesignsFauxReal – A website that sells fictitious counterfeit goods. It educates consumers about the negative consequences of purchasing imitations.

The Counterfeit Report – A website through which manufacturers pass information about counterfeits to consumers. Consumers are encouraged to report counterfeits.

Unreal Campaign – This teen-focused website teaches young people about the economic, health and social risks that result from using counterfeits.

Making the sales process enjoyable will most likely draw even more prospects and customers to your business...

Making the sales process enjoyable will most likely draw even more prospects and customers to your business…

Just about everyone who has started a business is initially quite upbeat about finding customers, making sales and getting profits. This early gusto soon dwindles though when it becomes apparent that making substantial sales takes more than just being open for business.

Established businesses on the other hand are always looking to increase their sales volumes and therefore earn more profits.

As a business owner who is stuck with insufficient and/or mediocre sales volumes, it is perhaps time to take a step back and reflect about your approach to making sales. Are you really doing things right?

How about approaching salesmanship as an art form? This way you can perhaps start enjoying the process instead of merely thinking about it as something that needs to be done.

This shouldn’t be too hard.

In fact, all the suggestions here are nothing new. Implementing them with a new mindset however may be just what your business requires. Start enjoying the sales part of your business and let the enthusiasm rub off onto your customers and prospects.

1. Implement an effective pricing strategy

For most people, price comparison shopping is the only way to shop; it’s all about making smart purchases. If you are therefore selling your wares at astronomical prices as compared to your competitors, making decent sales is bound to be quite difficult.

Your price should make sense to prospects and make them willing to buy...

Your price should make sense to prospects and make them willing to buy…

You, in this regard, need to adopt an appropriate pricing strategy for your products and/or services. These two guidelines should be helpful:

  • Find out what your competitors are charging for their wares. If the quality of their products is similar to yours you may consider lowering your price slightly. If the pricing is influenced by product features, you can consider adding several more features to yours and then set your price slightly higher.
  • If you are convinced of your product/service’s superiority and that your high price is therefore justified, then by all means let customers and prospects know of the extra value they’ll get by using the same. Breathe life into your message!

2. Making the most of business upsells

Think about it.

You’ve most likely gone out to shop for something you really needed and ended up spending more than you had budgeted for simply because the sales guy convinced you that you needed one or two more things related to the original purchase. The ease with which you agreed to buy these extra things surprised you – especially because you consider yourself a responsible buyer.

Get your customers into the mood, give them hints, and make more sales...

Get your customers into the mood, give them hints, and make more sales…

This is the power of upselling. The sales guy simply got you into a buying mood, made the necessary suggestions, and you obliged.

How about you try this in your business?

Hint: First try it on regular customers; practice makes perfect.

3. Name your product/service appropriately

With effective branding you can make your product a household name...expect mega sales volumes once you get there!

With effective branding you can make your product a household name…expect mega sales volumes once you get there!

Effective naming of products or services typically takes into account several considerations:

  • Easy pronunciation
  • Ease of remembering
  • Simple association between the name and the product/service features and benefits

Nevertheless, there is nothing wrong with going for a unique product/service name. If this is how you opt to proceed just ensure that the name is easy to pronounce and write down. Coupled with effective branding, your product/service will very soon no longer be associated with outer space.

4. Embrace targeted content marketing

Dispatching your marketing contents all over the place simply because you have the budget for it is a haphazard and cost-ineffective tactic to gain more sales. Away with these hit and miss marketing tactics!

Targeted content marketing is about knowing your product and your ideal customers

Targeted content marketing is about knowing your product and your ideal customers

A statement I came across recently made me smile: “Wonder why there are no Lamborghini and Porsche ads on TV? Rich guys don’t watch TV!”

This is what targeted content marketing is all about. Don’t demean your product/service by marketing it to everyone; direct your messages to your customers and prospects.

This approach will deliver the following benefits (in addition to increased sales):

  • Lower marketing costs
  • Lower customer acquisition rates
  • Higher conversion rates
  • Higher customer satisfaction – which is very essential

5. Offering free samples

Giving out free samples is an effective way to increase prospective customers’ confidence in your product/service. After all, seeing is believing.

Offering free samples typically encourages prospects to buy...

Offering free samples typically encourages prospects to buy…

If you have a food catering business, for example, you can offer to treat some prospects to free delicious lunch. Practically convincing them of your culinary expertise will most likely see them hire your services.

6. Advertise your product/service effectively

Ads help to spread the word about products and/or services 24/7 and they’ll therefore greatly augment your marketing effort.

Well designed ads easily attract prospects and encourage repeat customers leading to increased sales

Well designed ads easily attract prospects and encourage repeat customers leading to increased sales

Effective advertising has everything to do with attracting prospects attention and describing what the benefits of using a product/service are.

In designing your ads therefore, ensure that they are so well designed that it’s impossible to ignore them. A creative graphic designer’s services will come in handy here.

Secondly, spell out your product/service’s benefits honestly – no hyping; undersell and over-deliver.

Thirdly, choose appropriate advertising mediums. Think about where the ad will be more effective – your target market’s behaviors and preferences will help you in this regard.

7. Introduce rewards programs

There are plenty of ideas to choose from for this increased sales strategy including basic ones like “buy 2 get 1 free” and more complex ones e.g. those where shoppers earn points which can be redeemed for certain products once they accumulate to a certain number.

"Buy 2 get 1 free" is a really effective way to attract customers and increase sales

“Buy 2 get 1 free” is a really effective way to attract customers and increase sales

In addition to marketing your products/services, these initiatives will actually help to increase sales, and additionally help to create customer loyalty.

8. Make the purchasing experience more convenient

How much effort do prospects have to put in before they can use your product/service? If transacting business with you borders on doing work then you can be sure that your sales volumes will be proportionally low.

Whether you have a physical or online store, you have to do all you can to reduce customer effort.

Go to your customers - most of the effort should be yours, not theirs.

Go to your customers – most of the effort should be yours, not theirs.

A brick-and-mortar store has to be conveniently located. Purchasing should be just as simple; customers shouldn’t have to shuffle from one office to the next to get clearance – a one-stop desk will make all the difference.

For an online store the concepts are really quite similar. All the links should be functional. Filling out forms should be easy. The shopping and shipping processes should be easily understood and doable. Any potentially troublesome processes should be made easy for customers e.g. through the use of screen shares on Google Hangouts.

9. Practice superb telephone etiquette and offer quality customer support

Placing your business’ telephone number on your product or ad implies that customers and prospects can reach you over the phone. It therefore makes no sense why no one at your end bothers to pick up the phone. You don’t pick up = Lost business.

Answering the phone promptly and correctly is good for business...

Answering the phone promptly and correctly is good for business…

Telephone etiquette is really a no-brainer; handle prospects poorly over the phone and say goodbye to a potential sale. It’s that simple.

You and the team should therefore style up with regards to telephone conversations, and more so when handling regular customers. Answer the phone graciously, strike up a brief conversation just to ease the tension, and then handle the business. Creating a cordial business relationship will go a long way in helping to foster customer loyalty, a win-win situation.

10. Tier your customers

It’s true that regular and new customers both bring revenue to the business by purchasing products and services. There is however need to show and treat regular customers in a manner that portrays your appreciation for them. It is really their continued support for your business that has enabled you to reach your present success.

Make esteemed clients feel appreciated; show them that you value their business

Make esteemed clients feel appreciated; show them that you value their business

Appreciation can be shown in a variety of ways, starting with the most basic e.g. greeting them by name and even ushering them into your office while other customers are served at the storefront. Appreciation can also extend to tangible benefits e.g. discounts, extended credit, free delivery, etc.

Why would such an esteemed client want to take his/her business elsewhere?

"You need to take your business' accounting issues very seriously!"

“You need to take your business’ accounting issues very seriously!”

For many small business owners, the sight or mention of anything to do with accounting is enough to instantly turn a smiling face into a contemplative one.

Is accounting one of the duller yet complex aspects of your business that you’d rather do without?

It is!?

I’m sorry, that won’t happen; can’t do, won’t do…perhaps in the next life.

Your business just can’t do without accounting.

This is the only way to keep your records accurate and complete; there are just too many numbers to memorize.

Effective accounting will help you to make considerable tax savings. Sound bookkeeping is the simplest way to assess and confirm your business’ cashflow, profitability and growth.

Additionally, why risk being yanked into a lawsuit for possible funds commingling?

Here are 11 accounting practices that will do a whole lot of good for your business:

1. Getting familiar with and using the three tools of measuring business financial health

Successful accounting is more or less pegged on understanding how the following financial documents work:

  1. The balance sheet – it’s used to tell the worth of a business
  2. The profit and loss statement – it’s used to confirm whether or not a business is profitable
  3. The cash flow statement – it’s used to anticipate a business’ future cash balances
A business' financial health is ordinarily confirmed by referring to three basic accounting documents...

Easily confirm your business’ financial health by maintaining accurate balance sheets, P&L statements and cash flow statements

With the help of these three documents you can make informed decisions about how best to use business credit and how best to commit funds to business operations. Understanding how these three documents work will also help you to make sense of other financial documents.

These three tools are indeed the basis of creating sound business plans. Many potential lenders scarcely have time for anything else; a quick glance at your financial statements is enough to make or break your attempts to secure funding.

Again, if you are considering the acquisition of a business, or to have yours acquired, it’s worth appreciating the fact that sound decision-making cannot be possible without a thorough evaluation of financial reports.

2. Hiring a reputable accountant and bookkeeper

You have three choices in selecting an accountant.

First, you can opt for an independent Certified Public Accountant (CPA) professional. Second, you can consider hiring an accounting firm; the scope of services will be wider but the fees much higher. Third, is hiring an EA i.e. Enrolled Agent. Your choice of EA must have passed an IRS-administered taxation test.

Reputable accountants and bookkeepers are typically well trained, experienced and competent

Reputable accountants and bookkeepers are typically well trained, experienced and competent

For lack of national certification standards like there are for accountants, using referrals is perhaps the best way to hire a competent bookkeeper.

There are different categories of bookkeepers. Basic ones handle tasks like receipts processing and bill payments. Full-service ones can make a summary of all your business’ bookkeeping activity which you then submit to your accountant to facilitate tax returns preparations.

NB: Accountants are well placed to recommend a good bookkeeper based on the quality of work submitted to them by various bookkeepers.

3. Identifying a good accounting software program  

Find and use accounting software that's appropriate for your business

Find and use accounting software that’s appropriate for your business

This is another consideration where your accountant’s advice will come in handy. Of course it’s very advisable to know what software different business owners in your industry niche use and how effective each is. Nevertheless, it’s quite impossible to overlook off-the-shelf solutions like Peachtree and QuickBooks. Ultimately, though, whatever you settle on must correspond to your business’ accounting requirements and budget.

4. Identifying a suitable accounting method 

You have two choices in as far as accounting methods are concerned:

a. Cash basis method – This is the simplest option. Basically, income is acknowledged upon receiving cash, while an expense is acknowledged after the bill is paid.

Your type of business will determine what accounting technique is most suitable

Your type of business will determine what accounting technique is most suitable

b. Accrual method – Here revenue is matched with expense without concern to when the cash may or may not be collected.

Simply put, if you on day X sell a product whose payment is due after 30 days, you will record that sale on day X – not 30 days afterwards when the cash is collected. Similarly, if your business incurs an expense on day X with payment due after 30 days, you will record the expense on day X – not 30 days afterwards when you make payment.

This is the method of accounting the IRS requires for businesses that deal with inventory and manufacturing.

5. Keeping business and personal accounts separate

Without exception, your personal and business records should be separately maintained. This is essentially done to ensure that only relevant records are used for the compilation of income tax.

6. Issues of tax liability

There are two issues that you and your accountant must sort out:

a. Income taxes – Sole proprietorship businesses report business activity on Schedule C of IRS form 1040. You, as a sole proprietor, are required to pay income tax on business income, as well as the social security tax levied on this income, and which is separately reported on the income tax return.

Evidently, considering that the social security tax is approximately 15% of net income, and that this is paid in addition to income tax, small business owners have no choice but to be hawkeyed about their financials.

This should be enough motivation to find a competent accountant capable of setting up estimated tax payments. These payments will help to make your final tax bills lighter as well as to avoid penalties for defaulting on tax payments.

You need an accountant who understands the intricacies of income and payroll taxes

You need an accountant who understands the intricacies of income and payroll taxes

b. Payroll taxes – If you have employees, you need to apply for the state and federal payroll numbers required for filing payroll tax returns. Your accountant will be better placed to handle this. The federal payroll number or Federal Employer Identification Number (FEIN) is obtained using form SS-4.

For every state, different local and state tax payments are required. Paying these taxes requires you to apply for a State Identification Number.

7. Consulting reputable sources of financial and technical assistance

Quite often pro-small business agencies and organizations provide financial and technical assistance to startup businesses. It’s worth finding an accountant who is quite conversant about some of these organizations. Examples include:

  • The Small Business Administration (SBA)
  • SBA-guaranteed loans via banks
  • Service Corps of Retired Executives (SCORE), a non-profit organization focused on helping small businesses to succeed.
  • Trade organizations
  • Tax incentives provided for hiring minority employees
  • Local community banks (with funding from the federal government)

8. Implementing effective internal controls for your business operations

“Internal controls” describes the objective required in the handling of funds, where money, be it cash, credit cards, or checks, is exchanged for goods and services. The purpose of this objective is to ensure that your business will receive all the income due to it without losing any of it through wastage, carelessness, employees’ dishonesty, fraud, etc.

With effective internal controls in place you won't have to worry about losing business revenue

With effective internal controls in place you won’t have to worry about losing business revenue

Effective internal controls must therefore be initiated and your accountant should identify appropriate controls suitable for your business. Some of the most common of these measures include damage control planning and inventory policies & controls. You also need appropriate controls for the procurement of goods and services, as well as controls to oversee the release of processed goods and services into the market.

Considering these requirements, it is clear that hiring an accountant who is conversant with your industry’s operations and procedures is well advised.

9. Prompt submission of quarterly returns

Quarterly returns must be promptly submitted to avoid penalties

Quarterly returns must be promptly submitted to avoid penalties

Basically, quarterly returns are payroll tax and sales tax returns. It is mandatory for small businesses to:

  • file quarterly payroll tax returns
  • send money withheld from employees’ checks to the federal government
  • send the employer’s share of social security taxes to the federal government
  • account for withheld state income taxes
  • account for state unemployment tax that employers pay to the state
  • pay sales tax (in states where this is applicable) depending on your sales volumes

Your accountant should from the start ensure that systems are in place to facilitate prompt payment of these taxes therefore avoiding penalization for late payment or non-payment.

While your business may routinely have to deal with being cash-strapped, holding off your obligation to pay some of these taxes is ill-advised considering the backlash that ensues when government agencies act to counter taxpayer delinquency.

10. Accurate bank account reconciliation 

Your bank account must be reconciled at least monthly upon receiving your bank statement. Reconciliation involves mathematically comparing your checkbook’s balance to your bank balance.

Ensure that your checkbook and bank balances are reconciled monthly

Ensure that your checkbook and bank balances are reconciled monthly

A difference in these two balances may result when checks you’ve written are yet to be cleared at the bank. In this case the checkbook balance will be lower than the bank balance since the bank is yet to make payments from the checks. In reconciling therefore, you will need to subtract the outstanding checks from your bank balance. If the two balances are now corresponding, you will have successfully reconciled your account.

Have your accountant explain this to you; you can save money by doing it personally.

11. Adopting a cost-effective employee benefits policy  

Seek professional accounting advice with regards to employees and payroll issues

Seek professional accounting advice with regards to employees and payroll issues

As your business hires more employees you will need to figure out the following:

  • The number of hours they will work
  • The holidays they are entitled to
  • The vacation policy you will adopt
  • The types of policies you will provide in case you choose to cover employee medical costs or medical insurance
  • The type of sick leave policy you’ll offer

These are certainly very weighty considerations and you need solid advice to make proper decisions. Your accountant and lawyer should get you started on the right track.

Adopting effective accounting practices is guaranteed to buoy your business’ chances of becoming successful. Considering the various financial requirements and engagements you must enter with the state and federal government, suppliers, clients and your employees, having a competent accountant by your side is imperative.

Do you have an accountant? If so, have the services you have received proven to be beneficial for your business?

Potato farming has good potential for profitability in the long-term

Potato farming has good potential for profitability in the long-term

Despite not being mentioned in the Bible, (the reason why Scots declined to eat them back in the day), it’s quite impossible to picture a world without potatoes. The potato is, in fact, the world’s 4th most important food crop, after maize, wheat and rice.

Lots of potatoes are eaten around the world daily. The Irish consider potatoes as their staple food.

Potatoes are the world's fourth most important food crop

Potatoes are the world’s fourth most important food crop

The average American eats 137.9 lbs of potatoes annually as follows:

  • 7 lbs fresh potatoes
  • 3 lbs frozen potatoes e.g. French fries and hash browns
  • 9 lbs potato chips
  • 13 lbs dehydrated potato e.g. mashed potato flakes, au gratin mixes, etc
  • 2 lbs of canned potatoes

From a nutritional perspective, the potato is one of the healthiest food crops around. A medium-sized potato offers a measly 110 calories, and has zero amounts of cholesterol, sodium and fat. Potatoes are nevertheless rich in iron, vitamin B6, fiber, vitamin C and potassium.

Oh! Lest I forget, French Fries were first served to America in 1801.

French fries are hugely popular around the world

French fries are hugely popular around the world

Total U.S. potato production in 2014 was approximately 447 million cwt from a harvested area of 1.05 million acres, valued at an estimated $3.5-4.0 billion. Average yield was approximated at 426 cwt per acre.

Frozen French fries are the country’s top potato product export.

In 2012, Idaho, Washington, Wisconsin, North Dakota and Oregon, respectively, produced the highest volumes of potatoes.

Now you know a couple of facts and figures about the potato. How about finding out what running a potato farming small business involves?

1. Choosing an appropriate site

Your site should receive full sun and have good quality soil

Your site should receive full sun and have good quality soil

It is advisable to grow potatoes in an open position that receives full sun. Your site can be slightly sloping, south-facing and sheltered from winds. It is preferable to have a source of water nearby to facilitate irrigation if and when this is required.

For the best results the soil should be deep to moderately deep, loose and well-drained, with a pH of 5.5 to 6.5. Potatoes are capable of doing well in a variety of soil types although a slightly acidic soil is preferable. Soil testing will help you to find out what your crop’s lime and fertilizer requirements will be.

For alkaline soils you’ll need to apply sulfur on top of the potato ridge after planting. This will help to promote yields and discourage skin flaws like Common Scab.

To reduce the risk of disease you should choose a site where the crop has not been grown for two years in succession. Correct crop rotation should therefore be done to prevent the accumulation of disease, potato cyst eelworm and volunteer potatoes.

It is worth noting that potato cyst nematode (eelworm) can survive in soil for 20-30 years. Additionally, the elimination of volunteer potatoes is a most vital way of effectively combating the eelworm menace, as well as blight and virus disease.

2. The required machinery and equipment

You'll need to invest in various farming machinery and equipment

You’ll need to invest in various farming machinery and equipment

You should consider investing in the following:

  • Tractor (around 45 kW)
  • Solid set irrigation equipment/ha
  • Planter/fertilizer applicator
  • Fertilizer equipment (spreader)
  • Spray equipment
  • Cultivation equipment/hiller
  • Tipping device fitted to tractor
  • Shed forklift
  • Digger/harvester (single row)
  • Digger/harvester (double row)
  • Scales
  • Bag sewing machine
  • Half ton bins
  • Grader

3. Preparing the soil for planting

Preparing the planting site well will help to optimize crop yield

Preparing the planting site well will help to optimize crop yield

You should do soil preparation well in advance to ensure that the soil will have settled nicely before planting time. Preparation basically involves weed removal, removal of heavy stones, and introducing well decomposed organic matter and high potash fertilizer into the soil.

Thorough site preparation will ensure proper early stage growth

Thorough site preparation will ensure proper early stage growth

Your objective in soil preparation should be to create a fine seedbed, free of clods to a depth of about 12-15cm. It is best to cultivate suitably dry soils to prevent compaction and soil structure damage, two causes of poor plant rooting capacity, and which in turn causes low crop yield.

Read more about soil preparation here.

4. Choosing the varieties of potatoes to plant

Choose a potato variety that grows well and has good market demand

Choose a potato variety that grows well and has good market demand

There are many different varieties of potato that you can plant. In the northeastern United States some of these varieties include Superior, Eva, Katahdin, Envol, Lehigh and Reba. In Ireland the most popular variety is Rooster which is renowned for having very desirable agronomic traits. This potato type also cooks very well and has an excellent taste.

In selecting a suitable variety of potato you should consider the following factors:

  • Yield – you want high yields in order to make good profits
  • Eating quality – the variety you go for must conform with consumer preferences
  • Maturity – it’s advisable to plant varieties which mature in succession
  • Keeping quality – some varieties are suitable for prolonged storage but some aren’t
  • Disease resistance – this varies among the different varieties of potato

Read more about potato varieties here and here.

5. Issues about seed potatoes that you should consider

Using certified seed or seed free of virus diseases is most advisable. Over winter you will need to store your seeds in a refrigerated storage at 4°C to prevent over-sprouting. Excessive sprouting and sprout breakage result from poor storage and consequently result in poor crop vigor, irregular germination, and a wide range of stem numbers.

Chitting of seed potatoes is highly advisable as a means of encouraging the sprouting of strong shoots over several weeks. This will ensure that once planted, growth will be faster and the crop heavier. Chitting also encourages early maturity and helps to lengthen the harvest window. Learn about how to “chit” seed potatoes here.

6. Requirements for potato planting

A good planting technique will facilitate all subsequent aspects of crop management

A good planting technique will facilitate all subsequent aspects of crop management

The factors which influence potato planting time include weather, soil conditions and regional variations.

Timing: It is best to plant potatoes when the soil temperature is around 7°C; the soil should not be cold and wet. You’ll also want to plant when the threat of frost damage is minimal.

Planting depth: You should maintain a uniform depth of about 12-15 cm below the ridge surface, and 4 cm above the furrow base to protect the seeds in wet conditions. Depth also depends on seed size and potato variety.

Seeding rate: You should determine a suitable seeding rate that will both result in cost-effectiveness and a suitable size of potato tuber as per market requirements.

Spacing: You should space your seeds in intervals of about 7-12 inches. Spacing requirements are influenced by: potato variety, soil type, soil moisture available, soil fertility and amount of fertilizer applied, and desired potato harvest size (potato size increases with more spacing).

Setting your ridge widths at 80 cm and row widths at 90 cm should be feasible. Having wide rows will:

  • provide you with enough soil to make good ridges
  • reduce the incidence of the ridge sides being compacted by tractor tires, thereby reducing clod formation and subsequent greening of tubers
  • enable you to work faster

Drip irrigation: This is preferred over other irrigation techniques as it effectively manages all aspects of moisture application. You can therefore also use it to apply nutrients in precise amounts.

Two potato planting rules of thumb:

  • optimal seed rate and spacing vary greatly; they depend on required tuber size, variety, growth conditions, and seed cost
  • to increase tuber numbers and reduce tuber size you need to increase seeding rate with larger seed and/or closer spacing
  • when applying fertilizer at planting time, place it approximately 10 cm away from the tuber to prevent scorching

Read more about potato planting here, here and here.

7. Fertilizer application

You will need to apply sufficient quantities of Nitrogen (N), Potassium (K) and Phosphates (P) to achieve optimal crop yields, tuber size and quality. Conducting a soil test will enable you to determine the correct amounts of fertilizer to be applied. The recommended nutrient application for maincrop potatoes is as follows:

Nutrient Low (Kg/ha) High
Nitrogen 95-170
Phosphate 50-125
Potash 120-305

In case you decide to use organic manures, you will need to proportionately reduce the amounts of fertilizer applied based on the manure’s nutrient value. Read more about fertilizer application here and here.

8. Controlling weeds, pests and diseases

The Colorado potato beetle is one of the pests you must look out for

The Colorado potato beetle is one of the pests you must look out for

  • Weed control – You will need to eliminate weeds to ensure that your crop isn’t deprived of water, nutrients and light. Practical research has shown that failure to remove weeds reduces crop yield by 50% or more. Application of herbicides and mechanical weeding are the two most effective options for weed control. Crop rotation and application of plastic mulch will also be helpful in weed management.
  • Pest control – You’ll need to eradicate pests that can wreak havoc on your crop. Four pests are particularly notorious i.e. wireworms, slugs, aphids and eelworms. Others include Colorado potato beetles, flea beetles, leafhoppers and corn borers.
  • Disease control – Diseases you need to be on the lookout for include potato blight (early blight and late blight), black scurf (stem canker), blackleg and bacterial soft rot, common and powdery scab, fusarium dry rot, verticilium wilt, rhizoctonia, and leaf roll and mosaic viruses.

Read more about caring for your potato crop here and here.

9. Harvesting potatoes

Harvesting typically begins with the removal of potato haulms

Harvesting typically begins with the removal of potato haulms

When harvesting your crop the objective is to do it with minimal damage to the tubers before storage. To determine the correct time for harvesting you will need to consider the growing season, weather conditions, and the size of tuber required (the longer the growing period the larger tubers become).

Harvesting begins with the burning off or desiccation of the foliage (haulms). You will especially need to do this if your crop will be going into storage; crops lifted with immature or blighted foliage carry a high probability of rotting in storage. If you’ll be selling the crop immediately, however, burning off won’t be really critical.

Haulms removal won't be necessary if the potatoes will be going to the market immediately

Haulms removal won’t be necessary if the potatoes will be going to the market immediately

Burning off refers to the removal of potato foliage and stalks; desiccation achieves the same thing via the application of a special agrochemical. After applying the desiccant you’ll need to wait for 2-3 weeks before you can start harvesting.

This waiting period will allow the tuber skins to mature thereby reducing the probability of damage and disease at harvest and in storage. Harvesting should also be done when the soils are relatively warm; cold wet soils will lead to an increased incidence of diseased and rotten tubers.

Read more about potato harvesting here.

10. Potato storage

After harvesting you should carefully transfer the potatoes to a suitable storage space

After harvesting you should carefully transfer the potatoes to a suitable storage space

You should see to it that proper storage is done, more so in the first 14 days, as this will facilitate the effective healing of cuts and bruises on the potatoes.

The ideal storage conditions are as follows:

  • Sufficient air movement, an average temperature of 65°F, and high relative humidity (85%-90%) during the initial phase of storage. These conditions will allow for the proper drying and curing of potato skins.
  • Temperature reduction at the rate of one degree per day until the final storage temperature of 38°F to 40°F is attained. The potatoes can be stored in paper or hessian sacks but not in polythene bags as this will lead to the “sweating” and rotting of potatoes
  • Relative humidity should be maintained at 85% to help prevent shrinkage and pressure bruising, and to enable the potatoes to retain their firmness
The best sacks are those that allow potatoes to be aerated

The best sacks are those that allow potatoes to be aerated

It is advisable to store large quantities of potatoes in plastic bulk containers rather than wooden ones; plastic containers are much easier to clean.

Read more about potato storage here and here.

11. Factors that will influence your business’ success

Starting a potato farming business will require you to face and deal with multiple factors and risks which make growing the crop reasonably difficult. You’ll need to ponder about the following:

  • Availability of good quality potato seed – which is very expensive
  • Disease vulnerability as well as infection of the crop by fungi and viruses from other crop fields nearby. Controlling disease can be costly.
  • Fertilizer costs – these are quite significant
  • If you are thinking about growing seed potatoes you’ll have to adhere to strict health, quality and varietal purity requirements
  • The high cost of investing in machinery and equipment required for potato production
  • Market price fluctuations – thereby making this a business where profitability is determined over the long-term
  • Marketing opportunity challenges especially where you have to compete against large production areas
  • The perishable nature of potatoes – you can only store them for about 10 months
  • The need to gradually increase the size of your operation in order to increase the return on investment
  • The need to constantly learn how to make your potato production better

Learn more about what it will take to make your potato farming business a success here, here and here.

References:

http://extension.psu.edu/business/ag-alternatives/horticulture/vegetables/potato-production

http://www.thompson-morgan.com/how-to-grow-potatoes-in-the-ground

http://www.conservation.org/global/ci_south_africa/publications/Documents/potato-fact-sheet.pdf

http://www.teagasc.ie/publications/2013/2844/GrowingPotato.pdf

http://www.nationalpotatocouncil.org/potato-facts/

https://www.daf.qld.gov.au/plants/fruit-and-vegetables/vegetables/potatoes/farm-requirements-potatoes

http://www.thebusinessfarmer.com/V2_news_articles.php?heading=0&story_id=166&page=72

http://www.bdo.ca/en/Library/Industries/agriculture/pages/Bucks-In-The-Ground-The-Cost-To-Grow-An-Acre-Of-Potatoes.aspx

http://www.farmersweekly.co.za/article.aspx?id=24441&h=Starting-off-with-potatoes

http://www.potatogoodness.com/nutrition/nutritional-facts/

http://www.littlepotatoes.com/potatoes101/fun-facts.php

http://www.umich.edu/~elements/5e/web_mod/potato/fact.htm

http://www.potato.ie/key-facts/

http://www.usda.gov/nass/PUBS/TODAYRPT/cropan15.pdf

http://www.ers.usda.gov/topics/crops/vegetables-pulses/potatoes.aspx

Top entrepreneurs have what it takes to steer their businesses through tough times...GRIT

Top entrepreneurs have what it takes to steer their businesses through tough times…GRIT

When times get tough a large business typically makes it through and even achieves growth by harnessing its superior capacity to access capital, bargain better terms, and pursue a greater scope of investment options.

A small business on the other hand has to do all it can to avoid going down during a financial slump. Ill-advised knee-jerk reactions to such a scenario may include the prompt laying off of some employees or shutting down of some branches.

More prudent business owners will however be more intuitive in their responses. They’ll want to know what measures can be implemented to keep the business afloat until profitable winds start blowing again.

By adopting a survival mentality there is a good chance that your business will remain intact through crisis times. You will also find it easier to pick up and continue when the economy rebounds.

This is unlike a business that opted for rash responses, such as the ones above, which are really last resort measures. Such a business will no doubt lose momentum seeing as time, money and other resources will have to be expended in hiring new employees, securing premises, winning back lost clients, etc.

What therefore are some of the strategies you can embrace to cope with crisis times?

1. Reinventing your business

After all, necessity is the mother of invention...

After all, necessity is the mother of invention…

When times are good many small business owners direct all their focus on making the most of the currently available opportunities. This is all good but it’s done at the expense of diversifying the scope of focus.

For such a business, a slump in demand and sales has an almost crippling effect on operations and the owner may be at a loss about how to proceed.

How about recreating the business? Start by analyzing your strengths and weaknesses and then think about another sector of market where you can be a fit.

  • Consider your current products/services; does demand still exist or have customers preferences changed?
  • What are the new trends in your industry; have you kept up?
  • What steps can you take to become relevant again?
  • Do you need to develop new products/services?
  • What is required?
  • Do you know what customers need and how much they are willing to pay?
  • What new products/services can you develop?
  • How will you best reach the new clients?
  • Do some of your old clients fit in your new target market? Can you use them to get more customers?
  • Will these products/services earn you maximum profit?

Repackaging your business and getting back on track may take some time.

Take heart though.

The course of action you opt for will most likely be quite familiar to you (thanks to your experience so far) such that making inroads won’t be too difficult.

2. Create other revenue streams

Can you think of other ways to earn money in addition to your core business activity?

Can you think of other ways to earn money in addition to your core business activity?

You must start thinking about how else you can earn revenue in addition to what you are doing currently. This is about finding out what else you can do with the current resources at your disposal.

If, for instance, you own a barber shop and business is slow because three new barber shops have opened up on your street, why not think about offering other men’s grooming services. Many men are now warming up to manicures and pedicures. How about making your shop a one-stop grooming shop by partnering with personal beauty pros?

3. Seek out your former customers

Pick up the phone and call past prospects - perhaps a deal can be struck

Pick up the phone and call past prospects – perhaps a deal can be struck

You never know. What harm can there be in finding out? Who says a former customer can’t be convinced to start buying again? Perhaps he or she is disappointed with a current supplier’s quality.

Are there customers who left because their priorities changed? Might they have changed again? Why not find out if their current preferences are within your scope? Perhaps they can even refer new clients your way.

Maintaining a professional relationship does have its perks.

4. Find former prospects and other people on your contact list

Find out if your contact lists can yield new leads

Find out if your contact lists can yield new leads

When times were good and demand was booming you probably had several cases where potential business deals fell through for one reason or another.

Perhaps some projects you were eyeing didn’t materialize because the prospects had to put them on ice at the last minute.

Try getting in touch with such prospects to find out if such opportunities still exist.

5. Make strategic alliances

Create mutually-benefiting relationships with other businesses; seek and return favors

Create mutually-benefiting relationships with other businesses; seek and return favors

It is worth exploring the industry to find businesses that you can work together with for strategic benefits. This can expand your scope of exploitable opportunities meaning that you’ll still be in work even when your core area’s prospects become lean. Sooner or later you’ll be the one extending the favor.

Also, having a strategic partner will help to propel your market penetration efforts considering that you are most likely facing off against bigger competitors.

6. Explore the online marketplace

Aggressively sell your products/services online

Aggressively sell your products/services online

Many offline businesses owners may be surprised to find out that there are lots more potential customers online.

Don’t be ignorant; simply find out if this is the case and how you can exploit the potential.

Perhaps you do sell online but you are experiencing declining sales. Now is the time to find out if your previously successful strategy has been too limited in scope and if there are new channels to discover. Find out which aspects of your e-commerce site must be improved. Perhaps your marketing strategy is inefficient. How can this be revamped?

7. Make the most of free publicity

If your business has interesting things to offer people will talk about it

If your business has interesting things to offer people will talk about it

Whenever you get the chance to spread the word about your business don’t hesitate to do so. Word-of-mouth is highly effective and absolutely free – find out ways to always be on people’s lips.

8. Start doing more on social media

Use social media to optimally market your business

Use social media to optimally market your business

Simply having a social media presence is not enough – you must get active in these channels.

Start interacting better with your target audience. Take time to post comments regularly. Ensure that clients’ questions and comments are responded to promptly. Engage your audience by discussing matters related to your products/services and the industry at large. Don’t forget to advertise your product/service on social media.

9. Make your business mobile-friendly

Your business should move with the times - embrace the mobile platform

Your business should move with the times – embrace the mobile platform

An increasing number of people (read your target audience) are becoming accessible via tablet and smartphone for a greater part of the day. This as opposed to when desktop computers and laptops were the only means of internet access. Is your business mobile-savvy yet? It needs to be.

10. Review your business budget

Reviewing your budget downwards will be absolutely vital

Reviewing your budget downwards will be absolutely vital

This is very applicable for small businesses that have departments to handle various operations.

Require your managers and supervisors to list suggestions about how expenditure can be reduced in their respective departments. To motivate them you can pose this as a challenge. You can, for example, promise a handsome reward for the departmental head whose cost-cutting initiatives resulted in the greatest percentage reduction in allocated budget.

You should also consider the expenses you can influence directly and immediately. Is it possible to opt for a cheaper package for your telephone and software requirements? Have you been taking advantage of attractive discounts and deals typically offered by service providers?

How about the lease terms for your premises or equipment? Are you being overcharged considering current market rates? Are there cheaper options?

11. Find new ideas for profitability

Now, more than ever, is the time to summon your  firm's creative minds

Now, more than ever, is the time to summon your firm’s creative minds

This should also be done in collaboration with the staff. Now is the time to really brainstorm for viable ideas that can actually be implemented in the short-term to alleviate the crisis. Winning ideas should be well rewarded.

12. Rethink your positioning

Giving your business a unique market proposition is a sure way to draw more clients

Giving your business a unique market proposition is a sure way to draw more clients

Think about how you can uniquely present your business to the target audience.

What are some of the qualities you think that only your business can offer customers?

Re-position accordingly and let your customers and prospects know about the extra value they’ll get by doing business with you.

13. Make your turnover rate faster

Find out why your stocks are taking too long to sell and then make amends immediately

Find out why your stocks are taking too long to sell and then make amends immediately

Review your business operations to find out what practices are encouraging slow turnover.

Is it that your inventory lies idle for lengthy stretches? Find out if you can purchase less stock instead of tying down too much money at the expense of your profits.

Is it that many of your customers are simply taking too long to pay up? Perhaps offering attractive discounts for prompt payment will help.

Perhaps some of your products are taking too long to sell. Think about reducing package quantities, or end production altogether.

14. Negotiate better terms with your vendors

Convince your suppliers to extend your payment periods

Convince your suppliers to extend your payment periods

To secure better cash flow for your business engage your vendors and convince them to give you more time to settle your invoices. Use this cash to keep operations flowing.

15. Revise your payroll cycle

Paying your staff less often will enhance the firm's cash flow

Paying your staff less often will enhance the firm’s cash flow

This will generally work in the same way as no.14 above.

Perhaps you currently pay your workers weekly – change this to biweekly. In case you currently pay them biweekly, change this to monthly.

You will not only have better cash flow but it’s possible that current payroll processing costs will be significantly reduced, more so if you have a large workforce.

16. Go green and minimize wastage

Insisting on energy-saving initiatives will result in considerable power bill savings

Insisting on energy-saving initiatives will result in considerable power bill savings

Take all the necessary measures to ensure that energy costs are trimmed. Basically, adopt energy-efficient practices at your workplace.

Ensure that all lights are switched off when they are not required. All office equipment must also be unplugged at the end of the day.

According to the ENERGY STAR program 40% of electricity consumption by home electronics happens when they have been turned off but not unplugged. The potential savings that you can make on costs of power are evidently quite significant.

The same measures should be taken for everything else including time. Enact a strict policy against lateness and inability to meet deadlines.

17. Cut down on travel expenses

Video-conferencing is so much more cost-effective as compared to traveling

Video-conferencing is so much more cost-effective as compared to traveling

By taking advantage of technology you can significantly trim your travel budget. Have you considered video conferencing?

Again, do you really have to fly first-class? How bad can business class be?

18. Consider making changes to your workforce’s employee status

Hiring freelancers and independent contractors will significantly lower your wage bill

Hiring freelancers and independent contractors will significantly lower your wage bill

If you have hired your team on full-time basis you may want to consider making them independent contractors.

Assuming you have been honest with the team about the current situation they will most likely appreciate that they’ll still have jobs.

Their new status means the business will no longer have to pay payroll taxes and/or health insurance benefits, all translating into money saved.

Knowing how to stay afloat during hard economic times is crucial in determining whether your business will survive or go under. Has your business had to ensure such times? What was the crisis like and how did you pull through?

Cash is truly king!

Cash is truly king!

To grow and make a success of your small business you must embrace prudent cash flow management. The old business adage “cash is king” has very practical implications for business owners.

Indeed, while long-term business failure results from an inability to make profits, short-term business failure happens when a business doesn’t have enough cash to pay its bills.

The basics of prudent cash flow management are rather obvious. Money inflow must exceed money outflow.

Money inflow must be prompt and timely to facilitate new stock acquisition and payment of suppliers. When cash is easily accessible you can considerably tilt buying and negotiating terms in your favor; this will no doubt boost profitability in the long-term.

Good cash flow management will also enable you to better anticipate shortfalls in money inflow thus allowing you to initiate timely contingency measures e.g. securing favorable credit terms.

What therefore are some of the prudent cash flow management practices that you as a small business owner should implement?

1. Reviewing your cashflow systems

Regularly review your cashflow systems to ensure that the business is not losing money

Regularly review your cashflow systems to ensure that the business is not losing money

Begin by going through your cashflow system in order to identify possible loopholes through which the business may be losing money. Accordingly, put in place a system that will ensure customers are always invoiced for products/services sold and promptly so. Now your system should at a glance show what is owed to you by clients and what you owe your suppliers.

You should also be able to quickly ascertain that you are only paying for supplies received; failure to do this may result in some of your suppliers routinely overcharging you and/or billing you for supplies not received.

It is also worth working out a payment structure that will see you make payments to different suppliers on different dates over a suitable time period instead of paying all of them at once.

2. Creating sales projections

Accurately estimating sales volumes and inventory requirements enhances cashflow management

Accurately estimating sales volumes and inventory requirements enhances cashflow management

Monitoring daily sales will help you to accurately estimate your inventory requirements. You will thus be able to make well-informed purchases and thereby avert the possibility of overstocking inventory for which you will incur storage and maintenance costs.

Additionally, referring to past quarterly sales and future estimates will help you to sensibly budget and plan for inventory purchases.

3. Insisting on deposits for large orders

Insist on receiving a deposit when the order is substantially large

Insist on receiving a deposit when the order is substantially large

Upon receiving a large or unique order it is prudent to insist on a security deposit that is equal to or more than half the total price. A distinct characteristic of unique products is that they have a limited sales value, typically to the person making the order.

In the event that these products are no longer considered as valuable to the client as before, you become subject to the risk of receiving a lesser payment than was initially agreed. Insisting on a deposit will therefore go a long way in helping to reduce your financial loss should things go haywire.

When you are the one making orders, however, try and avoid paying deposits. This especially applies when you are dealing with suppliers well known to you. Simply ensure that your credit history and relationship with a supplier remains positive over the long-term and this will spare you the need to make deposits. This cash can serve better purposes elsewhere.

4. Designing beneficial terms of payments for large orders

For significant orders you may need to come up with mutually beneficial terms

For significant orders you may need to come up with mutually beneficial terms

Sometimes it may be impossible to demand for deposits upfront e.g. if the client firm has limited financial muscle or has a policy against making initial deposits for orders. A proactive business owner will in such a case come up with a negotiable payment plan based on tangible benchmarks.

Not only should such a plan be agreeable to both parties, the payments made should suffice or exceed the costs incurred in delivering the order.

For example, given an order to screen-print 1000 t-shirts, the printer may require the client to make a 15% payment after the t-shirts have been purchased, another 35% after the screen has been designed and inks purchased, and 40% of the total agreed amount be paid in four installments as batches of 250 t-shirts each are delivered. Only after all the 1000 t-shirts have been delivered and inspected for quality will the remaining 10% be paid.

5. Offering discounts to encourage quick payment

Make your terms as attractive as possible to encourage prompt payments

Make your terms as attractive as possible to encourage prompt payments

To accelerate cash inflows it might be a good thing to offer discounts to clients who will remit payments well before normal payment term periods elapse.

Typically, invoices are meant to be settled 30 days after receipt, but if payment is made within the first 10 days a 2% discount is given.

Knowing your clients payment habits and your business’ requirements you can make a decision to make this discount rate more attractive for clients who are habitually late.

Such an approach won’t work across the board though. It might work when you are trying to secure more business from a promising startup but you certainly mustn’t apply it for a big client who gives you big business every month but always pays up after 40 days.

6. Enforcing credit terms

Don't hesitate to enforce your terms when payments are not forthcoming

Don’t hesitate to enforce your terms when payments are not forthcoming

Your cashflow will suffer when you extend credit to slow-paying customers. Having identified such clients you need to negotiate new terms that will compel them to settle their accounts quicker.

New clients must know that your business is very particular about prompt payments. Prior to doing business with new clients it is prudent to check their credit reports.

7. Harnessing cashflow management technology

With the help of accounting tools like QuickBooks and Pulse you will have an easier time figuring out your cash inflows and outflows, keeping track of due receivables and payables, and so on.

8. Making the means to get paid more convenient

PayPal greatly conveniences buying and selling

PayPal greatly conveniences buying and selling

As a small business owner you need to make it easy for your clients to make payments.

You can, for example, invest in technology from Tradeshift or Basware to allow your clients to pay invoices via the Cloud. This will not only hasten cash inflows but will also help to avoid the errors and delays characteristic of the paper invoice trail.

Yet another option courtesy of Zapper Scan-to-Pay is to issue clients with invoices that feature QR codes. Using a smartphone a client simply needs to scan the code, confirm the amount, and make payment, all within a couple of seconds.

Other payment options you can avail for your clients are PayPal, Eftpos and credit cards.

9. Ditch pitching in favor of attracting new customers gradually

Gradual nurturing of business relationships is a much better way of finding new clients

Gradual nurturing of business relationships is a much better way of finding new clients

Sourcing for new business opportunities via pitching has been shown to be counterproductive seeing as time and resources are expended on an exercise that may not yield any income.

Today, many small business owners are attracting new clients by gradually growing relationships with them. Beginning with informal interactions and conversations, such a relationship grows from strength to strength as required. With several such relationships it is almost certain that new business will continually become available moving forward.

I sometimes think that this approach is akin to organic SEO where visitors tend to prefer/trust naturally-ranked (gradual relationships) websites more as compared to paid results (pitches).  

10. Opening a business credit card

It's prudent to have separate credit cards for personal and business use

It’s prudent to have separate credit cards for personal and business use

Keeping personal funds and business funds separate is a no-brainer.

With a business credit card you will easily be able to keep your business and personal credit separate, build the business’ credit, and avoid a scenario where qualification for business credit will need backing from your personal credit.

Keeping these lines of credit distinctly separate is one of the basics you must comply with if you have your sights set on more investment and business growth.

11. Offering fixed rate payment packages to your clients

Offering your service as a periodic package will guarantee regular cashflow

Offering your service as a periodic package will guarantee regular cashflow

Periodic payment packages are quite ideal for purposes of ensuring that good cashflow is sustained. This approach can work really well for businesses that have traditionally used the hourly rate as the basis for payment e.g. freelance writer services.

With the hourly rate there is really no way of estimating what your income will be month to month. However, developing retainer packages based on a fixed number of hours per month, and having clients pay up in advance, is an effective way to take total control of your finances.

Getting payments in advance means that you can account for your spending and business growth using actual figures rather than estimated ones that may eventually not tally considering that some of the arrears may never be settled.

12. Maintaining and repairing rather than replacing capital equipment

Regular equipment maintenance is crucial for  prolonged service life

Regular equipment maintenance is crucial for prolonged service life

Your business will enjoy better cashflow if crucial equipment is well maintained and expertly repaired when damage occurs instead of being replaced immediately. As a business owner you should ensure that equipment undergoes regular maintenance in order to detect/forestall possible damage and to restore efficiency.

In case some parts need to be replaced opt to source for these from third-party suppliers rather than the original manufacturers because the latter option is certain to be way more expensive. Also, find reputable technicians to handle complex repair/maintenance tasks instead of reverting to the manufacturer.

13. Going for used equipment instead of new equipment

Used equipment is cheaper to buy and typically offers satisfactory service

Used equipment is cheaper to buy and typically offers satisfactory service

Scour the marketplace in search of well-maintained used equipment when it becomes necessary to purchase additional or replacement machinery. Every now and then you will come across ads and auctions notices giving sale details of some equipment you may require. Buying such equipment will typically see you spend just 20-30% of a new machine’s price; the used machine’s capability will nevertheless be equal or just slightly less than what you would get from a new machine.

Leasing equipment can also be considered when your business’ cash flow is faltering. Expect to spend more in the long-term though.

14. Selling off obsolete/excess equipment or inventory

Retaining idle/obsolete machinery can be quite expensive

Retaining idle/obsolete machinery can be quite expensive

Having idle equipment at the workplace translates into wasted space and tying up of capital that can be devoted to other more productive causes.

Excess inventory is always at the risk of becoming worthless or obsolete especially where customers preferences change rapidly and new materials are rapidly adopted.

Inventory that you are unlikely going to use in the forthcoming 12 months may be worth selling off especially if retaining it will be substantially expensive and expected proceeds from the sale minimal.

15. Adopting subscription sales

Magazine subscriptions are paid for upfront; this is greatly convenient for the service providers' cashflow

Magazine subscriptions are paid for upfront; this is greatly convenient for the service providers’ cashflow

Subscription programs are best created for businesses whose products are repeatedly repurchased and consumed multiple times a year e.g. magazines and landscaping services. You might want to think of this approach as a means to boost cashflow considering that customers will be required to prepay for the products and delivery. This arrangement will allow you to secure future sales and cover the expenses involved.