Finance is one of the most sought after and lucrative career paths for many business school students. It is estimated that almost 30-40% of any graduating class in the business school graduates with a focus on finance. When you think about it the reasons are not too hard to find. The demand for graduates with a finance degree is never going to diminish, except for the unusual dip that was experienced after the Great Recession of 2008-09. These finance experts are needed by all types of companies in all geographies. Finance is an incredibly broad topic to study, yet those who graduate with finance degrees typically stick to one of two career paths – accountancy or investment banking.
For small business owners cash flow is equivalent to a blood flow. If it stops or is even constricted it can wreak havoc on your body and your business. Still the reality is every business runs into cash flow problems once in a while. A large customer delays a payment for few days and you will be scrambling to meet the payroll that is coming up. You may need additional cash flow if you are looking to expand the business with new products or locations. No matter how you come across the need for additional cash you need to have a plan in place to meet emergency cash needs.
If the Great Recession of 2008 has taught one thing to individuals and small business owners it is to keep their financial house in order, including credit history, debt and savings. Many business owners with low credit score found it impossible to get a loan at the height of recession. Even those with good credit history had trouble convincing lenders that they had the wherewithal to pay back the loan. Many people realized the importance of financial planning in that time.
For small business owners, cash flow is equivalent to blood flow. When it is flowing well without hiccups the system (business) works just fine. You spend cash buying inventory, leasing equipment, making repairs or doing anything else that will help produce goods and services that you can sell to customers and receive cash in return. This cash can then be deployed again for the abovementioned purpose and the cycle continues. Hopefully, you are receiving more cash than spending it, resulting in positive cash flow.
When turmoil strikes and everyone around you is losing their head (and money), it’s hard to stay calm and find solutions. Egypt is one such place where entrepreneurs have had to breathe in deep and think smart while revolution and financial turmoil increased unemployment and caused businesses to think hard about their economic future.
Faced with unemployment, many Egyptians have rolled up their sleeves, started their own business, and tried to make things work. But what about the SMEs that existed before the revolution and the financial crisis broke out?
Here are some of the problems they’ve faced, and how they’ve handled them.
If you are like most small business owners you don’t pay enough attention to saving for the long-term. After all, when you can invest money in your own business and get higher return than saving at a bank why wouldn’t you reinvest in your business instead of saving it. Many business owners do not even keep their personal and business finances separate. Their accounts and expenses are intertwined moving money from personal to business and vice versa all the time.
This could be a big mistake. As much as you would like to invest your money back in the business this can create number of issues potentially not only impacting you, but your family too. First of all, if something goes wrong with the business you could lose it all with no rainy day fund to tap into. The tax authorities will also come down hard in audits if you cannot show how your personal and business finances are kept separate.
Here is a quick question – When was the last time you checked your electric bill? Do you remember how much it was? If you are like most small business owners you do not pay attention to how much you are paying towards electric bill. You take it for granted that the electricity expense is fixed and there is not much you can do to bring that expense down. This could be a mistake because even a small monthly savings of $50 in electric bill can add up to substantial amount at the end of the year.
Come January, the festive season will be over and will soon be followed by the tax season. Small business owners will start sending and receiving form 1099’s showing the money paid and received for the services they rendered in the year 2012. One of the newer forms that IRS has introduced is 1099K starting in 2011. Sellers of items on E-commerce sites such as eBay and Etsy, that include many home-based merchants, are the typical recipients of this form. Many of them were caught by surprise last year upon receiving this form. There was also lot of confusion surrounding the form resulting from the instructions provided by IRS on this form (What else did you expect from IRS?)
So what is form 1099K and what does it include?
If you have not paid much attention to business credit the time to do it is now. For small business owners, business credit is like a lifeline, an insurance against unexpected expenses that might come out of nowhere. Business credit gives you peace of mind with the knowledge that you will not have to scramble to borrow money on a short notice to meet emergency financial obligation.
Look no further than what Ford did before the great recession of 2009 hit the world. Ford had established a huge line of credit by mortgaging pretty much everything they had, including their namesake blue logo! When recession did arise and all the banks shut their doors to business loans Ford could borrow from the line of credit and continue investing for the future. When both, GM and Chrysler, filed for bankruptcy protection, Ford was not only able to avoid it, but position itself to take advantage of upturn.