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Unsurprisingly, many of the big banks that accepted bailout money are still refusing to actually lend it to small businesses. Maybe this makes me sound like a pessimist, but I never really expected that when the last administration passed this legislation that companies that have shown themselves to be greedy, ineffective, and unconcerned with the wellbeing of their customers and employees would very suddenly change their opinions because they’d been handed free money.  However, I would have hoped that they would have at least lived up to the standard of dignity that businesses used to purport rather than the lowered expectations that the actions of so many large corporations have given to the public.

The ones who really suffer from this, however, are small businesses. While the multi-nationals are able to ride out the storm, it’s the local shops, service providers, cottage industries, and home internet companies that need credit to purchase supplies and pay employees. And it’s these companies that are finding it harder to get credit from banks that are more than willing to liquidate them and take the profit associated with that, claiming that they are unable to take the risks. And this is a good point, since they can’t afford to take financial risks if they spend over $42 million, part of that received from bailouts, on lobbyists to defeat legislation that would allow federal judges to cram down mortgage payments for homeowners (i.e. taxpayers) in need. Please visit http://firedoglake.com/money-spent-on-lobbying-to-defeat-mortgate-cramdown-in-1q-2009/ for a helpful chart based on Q1 lobbying report showing how much was spent in lobbyists and how much a company received in TARP funds.

The irony of this whole situation is that the groups coming to the aid of small business are not exactly the kind one might expect. In fact, I was shocked to see a union, the Service Employees International Union, come out in favor of small businesses being hurt by large banks unwilling to lend to them. In fact, they started a website and hotline (http://www.keepworkinghotline.org/) to collect the stories of companies suffering from this kind of betrayal and use them in lobbying efforts on their behalf. My personal feelings that businesses and unions should be able to find a consistent common ground in the well-being of the employees and quality of work aside, this is rather monumental.

There was a time when large businesses still had integrity, and I find it disappointing in the extreme to see them fall, industry by industry, on a daily basis. I believe in the small businessman and think they deserve every opportunity to make something wonderful with their company. Denying them in favor of higher profits and support for the lobbying industry will ultimately hurt business across the board, but I fear that the long-term planners have long since become endangered in the business community.

Small business owners have a lot to worry about these days. With all of the brouhaha over health care reform in the United States, it’s easy to believe that any plan will somehow negatively impact business, costing more money to employers by requiring them to provide health care at a certain level to their employees. However, I don’t think the situation is as dire as many would make it out to be.

Let’s ignore for a second that many businesses of all sizes are complaining that they might have to provide their employees with health care benefits that actually meet the needs of a person living in this country and focus instead on how health care reform can benefit business. I’m referring here to the Small Business CHOICE Act (H.R.  859 http://www.govtrack.us/congress/bill.xpd?bill=h111-859) .

This is an important piece of legislation for small businesses since it provides for two major benefits. The first is that a 65% tax credit would be given to businesses who take advantage of the opportunities this bill would afford, making providing quality health insurance much more affordable and reasonable. The second is much more radical, however.

Several small businesses would be able to pool their resources into voluntary health cooperatives, giving themselves a larger pool of potential employees and, by extension, more negotiating power with insurance companies. This allows smaller businesses to compete with larger companies in terms of benefits and encourages insurance companies to take another look at smaller firms that they would otherwise dismiss as being not worth the effort.

It’s fairly clear from my previous blog posts that I support companies working together to improve how they deal with customers and employees. In this case, businesses are being paid to do exactly that.  Small firms could save over 34% per year if this bill were to go into effect, and there would be fewer uninsured Americas as a result.

It’s easy to panic when the government begins to pass laws regarding how businesses should be run, and it’s not their place to do so in most situations. However, it’s important to look at every piece of legislation individually and examine it for its merits. In this case, the Small Business CHOICE Act is a benefit to companies, encourages competition, and will ultimately save you money. It’s solid legislation and not worth the alarm.

So often do we, as responsible adults, make the mistake of bouncing a check or paying a bill with funds that, through no fault of our own, simply aren’t there. Perhaps a recurring payment slipped our minds, or maybe that dinner and a movie was more expensive than we thought. Sometimes we even like to estimate based on the best case scenario rather than the worst.

While this may occasionally happen in our personal lives, it takes on a much more sinister and potentially hazardous meaning when it’s done in our business lives. The primary concern is responsibilty. Perhaps it makes me sound out of date to say this, but you have a form of social contract with your employees that if they perform the work that you set for them, you’ll compensate them. This can be expanded to include the idea that if they work their hardest, you’ll do your utmost to be upright, honest, and, most importantly, careful that they can continue to perform that work for you. Financial mistakes and overspending can lead a company quickly to ruin, so it’s important to keep a close eye on what money is coming in and going out.

I should preface any advice by saying that this is all generalized and for information on what’s best for your specific company you should speak to an authorized financial advisor. I don’t know what you do for a living or the challenges you face, so please don’t think I have the answer that is right for you.

First thing’s first: budget yourself. Your company, especially if you’re just starting it, needs to keep a close eye on what it’s spending and how it plans to spend in the future. Until you have a steady income and are turning a profit, you most likely are spending money you’ve been loaned, a part of which will have to go back to the bank (or whomever you borrowed from) and the rest that will have to actually be used to run your business. If you don’t budget and stick to it, you will eventually either have to ask for a larger loan or close down your company.

The next thing you must do is keep a ledger. This can be anything, really. They used to be large books with heavy covers that a person could use to painstakingly record every financial transaction that affected their business. Today there are new ways of accomplishing the same task, such as a spreadsheet program. There are more advanced computer programs as well, like Quicken or Quickbooks, that monitor your finances even more closely, keeping track of bank deposits, addresses of clients, and a whole bevy of information that most people will not need the entirety of, but parts of will relate to most businesses.

Even newer and more advanced are websites that will do very much the same task as the above such as Mint.com, Wesabe.com, and Geezo.com. These sites are able to help you keep track of what’s being spent, make suggestions on how to maximize the effects of your spending, and be aware of when you’re in danger of overspending or putting yourself in a bad financial situation.

Keeping an eye on your finances will help you avoid in your business the problems that you can occasionally (and only occasionally) get away with in your personal life. It can help you live up to your responsibilities as an employer and continue to grow.

Every new entrepreneur who has ever dreamed of starting their own business has one immediate goal. That goal is always to quit their day job and get started on making their millions.

Sadly, it’s never that easy and if you’re really serious about succeeding then you don’t make that big leap until you have the funds stashed away that will carry you through the leans times. Those lean times are always there between when you start your business and when it reaches the point where your business generates enough income to support you and to grow the business further.

To reach that point where you can quite your day job you need to build up a cash reserve that you can use in that dry period I just mentioned. So here are 5 tips for building a 6 month cash reserve. Some of these may sound a little strange or perhaps not applicable to you but it really is a situation where you ignore these tips at your peril.

1.    The very first thing you need to do is to carefully assess your current financial situation and what you spend each month. Make sure that you include your living expenses, your entertainment expenses, your loan and credit card repayments and the taxes that you have to pay to all levels of government. Look at what you can sell or change for something less expensive. Hint: what sort of car are you driving right now?

2.    Start putting away a percentage of your pay each pay period … put it into a bank account and leave it there. Some suggest that you set the percentage as low as 5% but personally I would be looking at stashing away at least 10% of your pay and if you can’t do that then put your business plans on hold until you’ve cut your outgoings to the point where you can save 10% of your pay.

3.    Set yourself a goal … a start date … when you want to leave your day job and start working on your own business fulltime. Try to cut your debts way back … even to zero before that date … and maybe even increase the percentage that you’re saving beyond that 10%. I know it sounds hard but when your regular income has gone and you’re living on your savings you’ll be glad you saved harder.

4.    Make sure you have a good accountant who can help you minimize your taxes and be sure to set aside money to cover those taxes. There’s nothing worse for a fledgling business than to face a huge tax bill that can reduce your reserves to zero overnight.

5.    Read what I’ve just said carefully and honestly assess your situation and start saving money and cutting your debts right NOW! And every time you get paid from your day job make sure that you save that percentage and try to reduce your debt even further.

Now maybe you think that all of that sounds rather tough and it was certainly meant to be. If you want your business to go beyond your dreams and become a successful reality then you have to be tough … you have to be disciplined … and you have to build up those cash reserves and in this situation less is definitely not more.

When you start a business the last thing most small business people want to get involved in is the technical side of running the business. They would much rather be involved in doing what they like doing best: baking bread and pies if they’re a baker; fixing electrical problems if they’re an electrician; repairing cars if they’re a mechanic.

Few small business people ever want to get involved in bookkeeping, doing accounts, chasing up people who might owe them money and basically managing their cash flow … but that’s one of the most important jobs there is because it’s the one that keeps your business alive. Pay no attention to your cash flow and your business will soon die.

What is cash flow?
So what is cash flow? Well if you search Google you will find plenty of very technical definitions of cash flow but basically cash flow is keeping the money coming into your business in a regular and steady stream. You can think of it as a river that flows steadily and keeps the countryside on either side of the river healthy and alive.

When droughts come and the river dries up the country along the river becomes parched and the plants and trees struggle to survive. And so it is with cash flow: when the cash is flowing into your business in a steady stream your business will survive and grow but if it reduces to a trickle then your business is going to struggle to survive.

Keeping your cash flowing
There are two factors that you need to watch carefully to ensure that your cash flow continues and never reduces to a trickle.

The first thing you need to do is to ensure that there is always paying work or customers coming into your business. You have to spend time advertising your business and chasing new work because if you don’t your cash flow won’t resemble a river at all. Instead it will look like a dry creek bed in arid country that only flows after the occasional downpour.

The other thing you need to do is to keep tight control on your accounts and never let people run up accounts that they have no hope of paying. Payment in advance or payment on completion along with progress payments is far better for you than payment in 30, 60 or ninety days.

Managing your cash flow
Income is only one half of the cash flow story … paying your bills is the other half and so many small businesses people  get into trouble and can’t pay their accounts because they don’t watch their cash flow and don’t know when regular dry spells are coming.

Just as most rivers have seasonal highs and lows the cash flow for most small businesses will have regular peaks and troughs depending on the time of year. Knowing when those peaks and troughs will come is important so that you’re prepared for those times when your income will be down.

If you’re serious about having your business survive and grow then you need to focus on your cash flow. You need to ensure that work will keep on coming in as a steady flow rather than a short flood and you need to keep control of your accounts and not let overdue accounts turn into bad debts that will destroy your business.