Your Experian Business Credit Report: How to Dissect & Understand It
In this post, we'll explain how Experian calculates your business’ credit score and walk you through the credit report that comes with it.
Your cash flow is the total amount of money moving in and out of your business. At its most basic, the cash flow formula calculates what’s left over after you subtract all your expenses from all your revenues. If your business is successful, you should see more cash coming in (from clients buying your products and services) than cash going out (for expenses such as rent, office supplies, etc.).
Let’s face it: Without cash coming in, you don’t have a business. But how can you tell if you’re on your way toward running out of cash? There are a few common signs to look out for.
Every business should have a plan for revenues and profits. A cash flow statement, income statement, and balance sheet are three essential financial management tools for every business.
It’s important to have an accurate cash flow projection that helps determine how much cash is available, how much cash is necessary for your daily operations and how much is required for non-income statement activities (such as investments in inventory, staff, infrastructure, software, etc.). You should also understand ways to improve your business cash flow, which we will get into later in this post.
Your sales dollars coming into the business will ultimately be used to pay for any expenses. So if your sales are declining, it’s likely that you won’t be able to support your business in the long term.
Perhaps the most concerning part of declining sales? It typically indicates that your product or service is no longer accepted or desired by your customer base. Think carefully about whether you should continue to pursue this business model or pivot to a new one.
“Market acceptance indicators” are metrics that help benchmark the status of your business. For example, you could track the renewal rate of your sales or the conversion rate of your leads. Many companies rely on repeat customers and revolving leads for sustainability — in other words, people who come back to you again and again. If these metrics start to flat-line or decline, you’ll start to run out of cash fast.
A business growing at a rapid pace is more likely to run out of cash than a business growing at a slower pace. The quicker your business grows, the stronger your need for an increase in cash flow.
For example, say your business recently received an influx of work or a large order for products. To manage that demand, you need to hire employees, invest in additional software for efficiency or purchase tools and supplies to keep up. It’s smarter to try to control growth at a slower pace so you can balance capacity, cash flow and demand at all times.
If you just launched your business, you’re more likely to run into cash flow issues than if you were well-established. Businesses in an early stage of development are more prone to running out of cash, simply because entrepreneurs often underestimate the cash flow required in their business and fail to accurately make a plan.
So how can you avoid the situations above? Many business owners simply see growth as a solution to any cash flow issue. But as we mentioned above, rapid growth is also a sign that you could quickly run out of business cash. Below are a few strategies to help improve your cash flow and stay out of the red.
Whether or not your business cash flow is under control can be determined by answering two questions:
Below are a few ideas to help you confidently answer those questions.
Running out of cash is one of the main reasons many businesses fail. Month after month, you need to be continually reviewing your cash coming in and cash going out. Acknowledging the above signals and implementing a strategy to control and improve your cash flow will strengthen your business.
Know of other signs and solutions that can help keep your business cash flow positive? Let us know on Twitter @Revenued_com.
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Savings accounts aren’t just for individuals — they are important for small businesses as well. Having savings on hand can help your business weather seasonal income fluctuations and unexpected expenses or prepare for large expenses that you know are coming.
Small businesses have a lot of choices when it comes to banking. Here are some of the benefits and drawbacks of choosing to do your business banking with Capital One.
Credit cards can also help your business develop a credit history, which is important should you want to secure business financing or more favorable credit terms in the future.