This is a guest post by my business partner George. Each owner of Pure Adapt will be writing a post while I’m on vacation.
Financing a small business can be very stressful when you are working with limited capital. Not having a solid cash flow can make or a break a company, so properly handling your finances is something no business owner should overlook. Below will outline some ways Pure Adapt has managed sustain positive cash flow and to continue self funding our growth without looking for outside investors.
1. Invest in QuickBooks or some other accounting software
Keeping track of your finances is important to assess how good or bad your business is doing. By entering everything into QuickBooks, you can easily pull up numbers about your profitability, what your balance sheet looks like, cash flow statements, credit card balances, bank accounts and much more. You can also use QuickBooks to track inventory, store customer information, manage your payroll, track your vendor orders and much much more. Once you take the time to learn how powerful QuickBooks is, you’ll wonder how you ever lived without it.
2. Make sure your bank account is accessible via the Internet
While this is pretty standard, it shouldn’t be overlooked. You want to pick a bank to work with who offers on-line banking. This allows you to pull up your account balance at any time, instantly transfer funds between accounts, get electronic statements, as well as easily setup auto payments and alerts. We use Citizen’s Bank for our banking needs. There are plenty of branches in the Northeast, they are open 7 days a week, and their Monday through Friday hours are an unbeatable 10am – 7pm for our local branch. Quick side note, it helps to make a conscious effort to introduce yourself and your business to the branch manager or the person in charge of small business accounts.
3. Apply for overdraft protection for your business checking account
Bank fees are outrageous now a days and can add up quickly. A simple way to avoid any overdraft fees is to apply for overdraft protection on your account. Yes, you’ll still pay a little bit if you happen to spend beyond your account balance, but the fees are minimal compared to over draft fees. I’ve seen over draft fees as high as $50 per transaction. Say one of your clients checks bounced and you made 10 transactions that took your account $2,000 over your current balance. With over draft fees this could potentially be $500 in fees! If you have over draft protection, even at a high 20% interest rate, it would amount to less than $35 if you left the balance ($2,000) for an entire month. It’s worth the piece of mind that you have the ability to cut a check or make a purchase prior to depositing funds or and not get crushed with fees.
4. Apply for a business line of credit through your bank
This may not be something you qualify for right away, but it’s certainly worth looking into. Most business line of credits go off of a percentage of your revenue and the stability of your business. You typically need to prove your business has been operating for 3 years by providing previous tax returns. The business line of credit acts as instant access to cash to pay off credit cards, have a cushion for payroll, take advantage of a deal from a vendor or for any other reason. Ideally, you want to get your business checking account (with overdraft protection) and your business line of credit through the same bank. With Citizen’s bank we can transfer funds between our business line of credit and our business checking account in real time 24 hours a day. This pool of cash has been an amazing asset to take advantage of credit card promotions, which I’ll get into next.
5. Apply for an American Express Plum Card
I love this charge (not credit) card for 2 main reasons. It instantly gives you a 2% discount on your entire balance when paid for within 10 days of the closing date. If your business is experiencing positive cash flow and you can pay off your purchases in full, this card is a must have. We saved thousands of dollars already with this card by making our inventory purchases from our vendors, then paying the balance in full. If you are close to paying the balance in full but don’t quite have enough, this is where the business line of credit comes in handy. The 2% savings for us, typically is worth much more than the few dollars in interest from using our bank line of credit.
Another great reason why e-commerce businesses should look into the Plum card is their rewards with FedEx and other vendors, such as Yahoo! We ship all of our packages via FedEx, and by putting your FedEx charges on the Plum (or any other Amex small business rewards card) you instantly save 5%, which is on top of your already negotiated discount rate with FedEx.
If you can’t pay the balance within the 10 days of the closing date, you have 20 more days to pay 10% of the balance and it’s deferred for 2 months completely interest free! Talk about flexibility from a charge card. I can’t stress how big this card is for our business and it comes highly recommended.
6. Don’t always throw away those credit card promotions
While most of us get bombarded with credit card offers, some of them can really come in handy. The ones that I really like are the ones that are a promotional APR for the life of the balance. Why wouldn’t you want to move as much debt as possible to a credit card with a fixed 2.9% APR for the life of the balance? It’s practically a free loan and no one is going to lend you money anywhere close to that rate. I recommend paying these balances off the slowest since you are locking in low rates for the entire life of the balance.
0% APR offers are good to take advantage of if you plan on paying it off before the promotional period ends. If this is the case, I find it helps to start a spreadsheet mapping out all of your planned payments so that you don’t get hit with higher interest fees once the promotional period expires.
If you have good credit where you can get approved for various cards, you can play the game of floating your debt between credit cards. You can pay one off with another, usually taking advantage of a balance transfer promo the credit card is offering. We managed to keep our credit card fees for all of 2008 to under 4% by playing this game.
7. Create a PayPal account and tie it into your business checking account
PayPal has many benefits to business owners and gives you one more way to send and receive money. PayPal offers an interest on your balance, so if you have a non-interest bearing business checking account, you can opt to keep some money in PayPal to make a return on your money. PayPal also offers random promotions on purchases made with PayPal so it’s something nice to setup for you and your business. It’s free and only takes a few minutes to get up and running.
8. Find an accountant that you feel comfortable with and who understands your business
When we first started Pure Adapt, we received some poor information from our first accountant that cost us thousands of dollars, as well as lots of time and frustration. Part of this reason was because they were trying to do what they could to make the most money, but primarily because they didn’t fully understand our unique business. We now found an accountant who truly understands our business, has experience with e-commerce companies and has already showed us ways to save thousands of dollars. Finding an accountant you can trust and feel completely comfortable with is worth its weight in gold, even if it means going through a few of them.