Going Green in Your Business; Money that is . . . notes from the February 2010 Program presented by Howard Kass and Joe Ramey of Zinner & Co.

Going Green in Your Business; Money that is . . .

Money Management for the Small Business

You just learned some of the ways to track the flow ofmoney through your business from my colleague, Joe Ramey.  Now, let’s discuss ways to find andmanage the money to track.

What is the lifeblood of business?  Money or, more specifically, cashflow.  Cash must be kept flowingfor a business to survive and thrive. If a business’s cash flow stops, the business will die.

So, what are the keys to maintaining cash flow in abusiness?

First, you have to generate cash. First, you do that byselling your product or service – lots of it – and, perhaps more importantly,by selling it profitably.  So,there are two important tasks to undertake at the very beginning; develop apricing model for your product or service, then, create a marketing plan.

Developing a Pricing Model

What are the goals of a pricing model?

  • To cover costs, and
  • To make a profit.

So, how do you determine what your prices should be inusing this model?

First, you need to determine what are your costs of doingbusiness? Moreover, what is the value of your time? Or, if you were hiringyourself, what would you pay yourself? Finally, to determine what your total revenue should be for the year,add a profit factor. . To arrive at your price per unit, divide your profitfactor by whatever unit of product or service you are selling.

Obviously, this is a very simplistic approach topricing.  For more information onpricing your product or service, there are a couple of good articles on pricingavailable at the following websites:

Another option, ask your accountant for help with pricing.

Keeping this exercise in mind, it is important that yourpricing model be at least somewhatcompetitive in your industry and market. What do I mean by that?  Letme explain by using an example.

If you are a web designer working in a market where webdesigners typically charge $30 per hour, what do you think the effect on yourbusiness will be if you charge:

  • $60 per hour?
  • $10 per hour?
  • $35 per hour?

At $60 per hour, you will likely price yourself out of themarket, unless you have some particular skill or technique that clearly sets you far above yourcompetition.  At $10 per hour, youwill attract business, but is it business that you really want?  The customers who are accustomed to andwilling to pay $30 per hour will likely perceive that there must be somethingwrong with you or your work and will, therefore, avoid working with you.

What happens at $35 per hour?  At this price, you are probably close enough to thecompetition to build a business based on the proposition that you are bringingsomething more to the table than the $30 per hour designers are.  It is up to you to define and promotethat difference to your target market to be successful.

Create a Marketing Plan

What’s in a marketing plan?  More than just a plan to sell your product or service.  It is important to understand thatmarketing is a multi-faceted pursuit. If you look at any basic marketing text, they talk about somethingcalled the Four P’s; Product, Price, Place and Promotion.  To sell your product and to sell it profitably, it isimportant that you give proper consideration to all of these facets.


When defining the product or service you are providing tothe marketplace, it is important to make certain that there is a need for it andthat your product or service meets that need.  Sometimes, you have to create that need in the minds of yourmarket.  More on that later.


I covered pricing earlier, but it is important to remindyou that your pricing has to be competitive, while allowing you to make areasonable profit.


This “P” speaks to the means by which you will distributeyour product or service.  With theaccess provided by the Internet, perhaps it isn’t out of line to begin thinkingglobally or, at least, nationally. State-wide?


This is what most small business owners usually think ofwhen they think about marketing; and, then, only with regard to their product.  Promotion begins with you and with yourbusiness.  Think in terms ofbranding.  Have you developed abrand for your business?  If not,now is the time to start.  Then, you can think about how to promoteyour product or service.

Money Management

Now that you are generating a cash flow, we can talk abouthow to manage it.  Did you rememberthat we are here to talk about money management?

So, what are the keys to effectively managing money inyour business?

Use a Separate Bank Account for your Business

It is important for a business owner to segregate herbusiness finances from her personal finances for a variety of reasons.

First, doing so tremendously facilitates recordkeeping.  Imagine the frustrationand aggravation associated with trying to separate your business activity fromyour personal activity in a single commingled bank account.

Second, in the event of an IRS audit, you only want toshow an auditor the minimum amount of information you are required toshow.  If your business andpersonal banking activity is commingled, you lose that option.

You need to be able to make effective money managementdecisions for your business, based on the activity of your business.  If you haven’t effectively segregatedyour personal and business banking activity, you won’t be able to do that.

Create and Maintain a Solid Accounting System

You have already heard about accounting systems.  I can’t stress their importance enough.

Make it Easy for Your Customers to Pay You

Open a Credit Card Merchant Account

We are becoming a cashless society.  Accepting credit cards simply makes iteasier for your customers to pay you. In fact, you may have an easier time getting some customers to pay bycredit card, than by any other means. Why?  Rewards.  Deferral of actually having to partwith their money.  Studies haveshown that merchants who accept credit cards can increase sales by as much as50%.

Downside?  Youmust generally have good credit to open a merchant account.  You will pay fees when you acceptpayments by credit card.  Comparedwith the cost of collections and bad debts, this is probably worth it.

Utilize Online Payment Services

This is a fancy moniker for PayPal, though they are notthe only online payment option out there. To accept credit card payments, you would need to set up a businessaccount.  Credit is generally notan issue in setting up a PayPal account.

Here, too, you will pay fees and, for a customer to payyou, they will have to go online and log into their PayPal account.  If they don’t have one, they will haveto set one up.  This could be apotential deterrent to a customer doing business with you.

Consider Getting Deposits Up Front

If a customer is placing a large order, or if you areentering into a long term service relationship with a new customer, considerasking for a deposit up front.  Ifyou have to purchase materials to make the sale or do the job, the depositshould be at least enough to cover your materials and, ideally, should behigher.

If you are providing a service, rather than a product,consider asking for somewhere between a third and half of the expected fee upfront.

In either case, if your customer balks at paying you adeposit, were they planning on paying you, in the first place?

Be Smart about Extending Credit

Generally, if you are making a sale or providing a serviceon a one-time basis, there should be no need to extend credit.  You should get paid upon delivery ofthe product or the completion of the service.  This, too, is where credit cards can be useful.

If, however, you are entering into an extendedrelationship with a customer where you will be providing regular, continuousproduct or service, then you may be in a circumstance where it is appropriateto extend credit.  If that is thecase, how should you do it?

Before extending credit, you should enter into a contractwith your customer that spells out exactly what product or service you willprovide, how much it will cost, and exactly what the payment terms are.  Then, ask your customer to complete acredit application.  You shouldthen follow that up by actually checking their credit.  Once you are satisfied that yourcustomer is a good credit risk, then, and only then, should you extend themcredit.

How to Collect Past-Due Accounts Receivable

No matter how careful you have been about extendingcredit, a day will come where you have difficulty collecting a balance due froma customer.  Now, what should youdo?

The most important thing you can do is to keep the linesof communication open with your customer. All communication with yourcustomer should be professional and respectful.  There is no place for making threats.  They will only serve to offend yourcustomer, making it difficult to get paid, ever.

However, you should keep the pressure on to get paid.  You do this by making nonthreateningphone calls, sending professionally worded letters and making personalvisits.  Remember, allcommunications should be respectful and professional.  You may be skeptical about this approach, but I can tell youtrue stories where I have successfully collected past-due balances followingthis approach when others around me were convinced we would never get paid.

If you are unsuccessful in collecting a delinquentreceivable in this fashion, you may have to consider using the services of a collectionagency or a collection attorney. If you go down this road, understand that they will take a contingentfee, often 1/3 of the debt, if they collect any money.

Your final option, if none of the above is successful, isto take your customer to small claims court.  Be aware that, even if you succeed in securing a judgment,getting paid can still be difficult, if not impossible.

Making Smart Use of Debt

What happens when you need more cash than is beinggenerated by your business?  Itdepends.  The first question thatneeds to be answered is why is there a cash shortage?  Is this a new business that is just getting started?  Is your business a seasonal one in whichyou experience peaks and valleys of cash flow?  Has there been a general downturn in your business resultingin an inability to pay your bills?

The answers to these and other questions will determinewhere, if anywhere, you can find money to help you through the lean times.

Sources of Cash for New Businesses

Unless you have a strong track record from previousbusiness ventures or are financially strong yourself, the truth is that youwill have a very difficult time securing cash for your business.  Let’s examine possible sources of cashfor a new business, along with their advantages or disadvantages:

Source Advantages Disadvantages
Owner Contributions No interest payments or repayment requirements No leverage created
Home Equity Credit Line Leveraged, not out of the owner’s pocket; Interest is generally deductible You are paying interest; there is a repayment obligation
Credit Cards Readily available source of cash (if you already have the credit card) Exorbitant interest rates; Payment terms often encourage spiraling debt

Sources of Cash for Established, Cyclical, Businesses

If you are in a business that experiences regular,predictable, up and down cycles, you are in a cyclical business.  The challenge you are often faced withis the ability to find the cash to pay bills when you are in the midst of adown cycle.

What are examples of business that have predictable,annual cycles?  A few that come tomind are retailers (think Christmas), amusement parks (think summer) andlandscapers (also think summer). They know, with a fairly high degree of certainty, when their businesseswill likely generate a strong cash flow and when they won’t.

So, what to do, in those circumstances?  Assuming the business is wellestablished and has a history of being profitable, this is a textbookapplication for a business credit line. If your business has a difficult time qualifying for a business creditline, some options that exist might be for you, the owner, to guarantee therepayment of the credit line or, perhaps, to utilize a credit line on yourhome, if that is an option.

If none of these options is available, andif your need for cash is short term, then a credit card may be a viableoption.  But, be very carefulhere.  I have seen too manyinstances of well-meaning business owners getting into serious credit cardtrouble by not properly managing their credit card debt.

Sources of Cash for Businesses Experiencing Downturns

If you find yourself in the unfortunate position ofsuffering through a downturn in your business, you most likely will have totake a close look at your business to determine if the downturn is a short termone, or of a more permanent nature.

If the downturn is a short term one, then you need toexamine the causes of the downturn and try to determine what actions need to beundertaken to reverse the negative trend. Are these actions within your control or not?  If they are not, you need to determine if you have thestaying power (financially) to weather the storm, or, if you need to considerother options.

If, however, the downturn is of a more permanent nature,you will have to take an even more in depth look at your business to determineif it is still viable.  If it is,you will then need to look for ways to alter your operations to permanentlyreduce costs, so you may continue to operate.  This option, by the way, also exists in the case of atemporary downturn in your business.

If, however, you determine that your business is no longerviable, you must consider liquidation. It is better to make a smart business decision and move on than tocontinue throwing good money after bad. This, too, is a key principal to effective money management.


If you have a solid business model and the initial capitalto get your business to the point at which it is self-sustaining, thenfollowing some common sense principals for managing your business’s money willhelp your business to survive and thrive for many years.  You just need to take a well consideredapproach to business management to give it the best chance possible.  This includes, among other things,aligning yourself with a solid team of professional advisors in whom you haveconfidence and whose advice you will take.

Money Management Miscellany

Some common sense things your mother should have taught you.

  • Pay your bills on time
  • Reconcile (balance) your check book each month
  • Find ways to reduce fees in your bankingrelationship
  • Move excess cash reserves (more than one month’sneeds) to a savings account
  • Deposit your receipts as soon as is practical(daily is good)

Leave a Reply