As the second year of abnormally high inflation continues, small businesses must continue to face increased scrutiny of their finances. Scott Crockett, CEO of Everest Business Funding, has over 20 years of experience as a consumer and commercial financing professional. His experience as a serial entrepreneur who raised over $250 million in capital and provided employment opportunities to thousands of employees did not come without overcoming some financial obstacles.
Below, Crockett shares his insights on maximizing profitability, budgeting, and managing cash flow to better help small business owners navigate financial challenges and navigate difficult economic and business realities.
When financial times are tough, more money coming into a business rather than going out will always help. By opting for lean management and reducing costs as much as possible without the quality of products or services suffering, a company can increase its profitability by having the ability to reduce expenses. Calculate the profitability of any future project it will also help assess how much business expenses should be reduced, when and for how long. There are three parameters that need to be analyzed when forecasting project profitability, including net present value, internal rate of return, and payback period.
A lack of budget spells trouble and easy debt for small business owners. Budgets should not be a one-off affair but rather a living document that is regularly evaluated and updated based on current situations. Business owners who consistently maintain a budget will end up making smarter financial decisions rather than blind ones.
The basic budget should contain five key variables: fixed costs, variable costs, one-time costs, a cash flow statement, and profits. Although many entrepreneurs today take advantage of a flexible budget, there is also the option of using a static budget. The difference between the two lies in the terminology. A static budget remains the same regardless of notable changes from planning assumptions, while a flexible budget adapts to these anticipated changes during planning.
Cash flow management
Less than two months of liquidity is the average amount cash that a small business has, with many often juggling smaller amounts. Being generally strapped for cash can be stressful, especially when the economy is tanking. Managing cash flow is a survival and growing part of any small business puzzle. This is why it is essential to predict how to resolve possible kinks in the drain pipe. Disruptions to the smooth flow of cash flow can include obstacles in customer payments, seasonal changes in business or unforeseen expenses.
Small business owners can proactively manage these cash flow delays by establishing financial strategies in advance of these potential problems. For example, incentives such as a free gift, discount, or loyalty program reward points may be offered to consumers who pay their bills early. Engaging in seasonal operations forecasting can, over time, better mitigate seasonal fluctuations. Having a cash reserve set aside for emergencies can soften the blow when unexpected business expenses arise. A savings amount can also be added to a business’s budget to prepare for emergency expenses. All of these precautionary measures and more can be taken to prolong the life of a small business.
About Scott Crockett
Scott Crockett is the founder and CEO of Everest Business Funding. He is a seasoned professional with 20 years of experience in the financial sector. Mr. Crockett’s track record includes raising more than $250 million in capital and creating thousands of jobs. Scott has founded, built and managed several financial companies in the consumer and commercial finance industries.
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