ThisIsCable for Business Report Series Cash Flow Management Solutions for Small Business White Paper Produced by BizTechReports.com Editorial Director: Lane F. Cooper Research Assistant: Will Frey
ThisIsCable for Business Reports are designed to demonstrate how new technologies enabled by cable providers help small business owners and managers address key challenges, solve problems and achieve mission critical objectives. More resources can be found at thisiscable.com/business.
page 3 Cash Flow Management Solutions for Small Business introduction One would be hard pressed to find a small business owner who is not intimately aware of every function in their own operation. It is why these business leaders so often describe themselves as chief-cooks and bottle-washers. In this sector of the economy, the top business leaders (presidents and CEOs) not only shoulder the burden of setting and directing strategic priorities, they also perform the functions of all the other c-level executives chief information officer (CIO), chief operating officer (COO) and chief financial officer (CFO). The focus of this report is on the last role the CFO position that business leaders often take on as the extra full-time job they fulfill in managing their dayto-day operations. Specifically, we will explore the online tools and technologies that are now available to small business owners and managers so that they can improve the way they manage cash flow and in the process secure the insight they need to plan for the future. One of the important factors in how well these online software (or application) services work revolves around the underlying network infrastructure that links small businesses to these important new tools. A core requirement to take advantage of these affordable web-based tools is a fast and reliable Internet and the security and other advantages that local service providers can provide.
page 4 Cash Flow is King When it comes to performing their CFO role effectively, there very likely is nothing more important than the management of cash flow. Cash flow mismanagement is cited by experienced business owners, consultants and industry analysts as the biggest reason for small business failure. This is interesting on a couple of fronts. Most small business owners worry about two things when they start out: Can they create an offering that people will buy; and Can they compete effectively to secure enough market share to survive. It turns out, however, that the quality of products or services offered by small businesses is hardly ever called into question. Their entrepreneurial dedication to a core competency (whether offering fitness services or delivering exotic jewelry) is what sets a small business apart from larger players. critical junctures What most often gets smaller organizations into trouble is the inability to make ends meet at certain critical junctures. Inattention to cash flow issues can lead to absurd scenarios in which offerings are well received by the market and orders are on the books but because a company lacks liquidity, demand cannot be met and fulfilled. It is during such situations that larger and better funded (but not more talented) organizations can outlast their smaller and more innovative competitors. These scenarios most often haunt small businesses at two points: During the start-up phase when organizations underestimate sales-cycles and collection time-frames; and When the economy down-shifts unexpectedly and small businesses are exposed to sudden reductions in demand and/or the unilateral extension of payment terms. (Instead of paying in 30 days, it has not been uncommon for large companies decide to pay their suppliers often small businesses in 45, 60, or even 90 days.)
page 5 Surviving these junctures demands a disciplined approach to cash flow management. This in turns requires small businesses to both aggregate and analyze financial information so that they can make effective decisions. Since most small businesses depend on their speed and agility to survive, keeping a paper-based ledgers and records is not considered a very useful tool. This is especially true in today s volatile business environment. A growing number of small business decision-makers are finding that what they need is the ability to have a constant finger on the pulse of their cash requirements; they also need to accurately predict when and from where cash is going to be available. Large organizations (the Global 2000) dedicate entire departments and invest millions of dollars every year in proprietary technology to address this function. Given the fact that small organizations do not have access to these kinds of resources, business owners have to look for other solutions. Cash Flow Metrics to Manage But before business owners go out and invest in off-the-shelf solutions (whether those be shrink-wrapped packages or web services) it is important to get a handle on the array of issues that need to be addressed by a small business. Analyzing cash flow begins by establishing a solid over-arching perspective on the current and projected cash requirements of an organization. This requires a real-time understanding of where things stand in accounts receivable vs. accounts payable, as well as the disposition of current credit instruments (credit cards, business loans, trade debt, etc.). A snap shot of the current status of cash must then be compared with future cash requirements that will be a function of the investments that need to be made to maintain operations, and the flow of transactions that are in the pipeline. This is the analysis that will allow small businesses to anticipate a potential cash crunch early, and provide both the time and the analytical tools in order to mitigate the potential situation.
page 6 Mitigation can take the form of seeking additional credit, altering terms and conditions such as reducing days of sales outstanding (DSO) or asking for larger up-front deposits. Or, it can involve slowing down payment schedules by lengthening payment terms with suppliers, for instance. On a more strategic level, understanding cash flow (and the payment patterns of clients) can help better assess who, in fact, are the best customers. It may not necessarily be the one who pays the most. Some of the key sources of metrics to manage and questions to ask revolve around: Accounts receivable What is due and when is it arriving? Can accelerated payment terms be negotiated? Accounts payable What is due and when must bills be paid? Can delayed payment terms be negotiated? Collections methodologies and policies Is it easy for clients to pay, do they have options that are convenient (check, credit card, paypal, etc.)? Credit Terms How much credit is available? How much is being used? Is access to the best interest rates available? Different businesses will have different issues that need to be managed. For instance, organizations that have inventory-intensive operations must take a close look at the impact that storage and products waiting to be sold and shipped have on their balance sheet and cash requirements. Professional services providers (consultants), on the other hand, must figure out how to monetize their calendar (by optimizing their billable hours). Thus, each business will have a unique perspective when it comes to their needs for cash flow solutions.
page 7 Growing Small Business Market Attracts Cash Flow Solutions The good news is that current momentum of history is on the side of small businesses. Because the small business community is a growing market, both banks and technology providers are designing easy-to-use solutions that can help owners capture and analyze financial information and better manage cash flow while planning for unanticipated bumps in the road. According to recent research from MarketsandMarkets.Com, 29 million small businesses currently operate in the United States, and a major portion of these require financial solutions such as cash and credit management, trade financing, payroll processing and treasury services. As a result we are seeing a growing number of cash flow management solutions enter the market that allow small businesses to monitor, analyze and adjust cash flow in order to make informed decisions in the best interest of the company. Cloud Computing and other SaaS Concepts Cloud computing web application services are now available to offer applications that manage all (or specific parts) of the financial and accounting processes, integrating the entire process into a single system. For instance, web-based accounting (or cloud accounting) is becoming increasingly popular because offerings have become easier and more secure to use. This has elevated the confidence that small businesses have in these solutions. These technologies use the web as the primary delivery method (as opposed to buying technology that is installed on the computer systems of small businesses).
page 8 They often include a wide array of functionality at much lower costs. Indeed, these SaaS (Software-as-a-Service) applications are free to setup and can cost far less in monthly fees than traditional software licensing packages for traditional software packages. Players and Offerings in Cash Flow Management Examples of these types of cloud-accounting offerings include: Intuit s QuickBooks Online QuickBooks is without a doubt the most prominent player in the small business community when it comes to offering financial management software. Intuit offers a version of its popular desktop packaged software application online. The company has surrounded the offering with other online tools for small business such as web-site building kits and other business applications that complement the general bookkeeping, invoicing, purchase order and client/customer management application. NetSuite Order and Billing Management This is a web application that accelerates cash flow with an integrated quote-to-order-to-cash process across sales and finance. It allows small businesses to control the quote and order process with options that enable integrated approvals, establish and enforce discounting policies, and develop pricing tactics for different types of clients. This offering also makes it possible for small businesses to monitor orders and days sales outstanding (DSO) with real-time dashboards and detailed reports. SAP This is a player that is known for its focus on the large (Global 2000) end of the market. But it is interesting to note that the company released a SaaS version of its premise-based offerings called Business ByDesign in April 2010. This package which targets the lower end of the market has been positioned as a competitor to NetSuite.
page 9 Pulse This is an application specifically designed for small business that monitors cash flow on a monthly, weekly, or daily basis. It has features that can help managers predict when to hire a new employee or take on new expenditures and is compatible with traditional accounting software. SalesOrder.com This is a complete web-based suite that combines customer relationship management (CRM) and enterprise resource planning (ERP) using SaaS delivery model for small businesses. conclusion These are by no means the only companies that are making available online offerings that allow small businesses to better manage cash flow and optimize their financial position. Indeed, because the small business market is expected to become an increasingly important part of the economy in the months and years to come, we can expect to see a growing number of innovative competitors to enter the field. This is great news for the small business community. But as new options are explored, the reputation of the SaaS providers will be something that business owners and managers should consider seriously. Small businesses must be aware that very sensitive information about their financial operations and about customers will be hosted online. It is therefore important to have a high degree of trust and confidence in the providers. With reputable organizations, it is very likely that the security and compliance measures that are available in the SaaS model will be superior to those typically maintained by most small businesses. So as the old saying goes: trust but verify. The availability and increasing functionality of these online cash flow management solutions will be greatly aided by improvements in the broadband infrastructure that is available to small businesses through the cable industry. This is critical, because unlike traditional software programs which only require a reasonably solid computer to operate network performance will have a very big impact on how well SaaS-based tools work. In short, the network matters.
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