Understanding cash flow in a small business

By Samantha Garner | June 8, 2019

Why is it important to understand flows of cash as they move through your small business? Even if you don’t think you have a head for numbers, not keeping an eye on your cash needs is one of the quickest routes to business failure. Here are some key things for every small business owner to keep in mind about cash flow.

The difference between sales and cash

When you sell a product or service to a customer, you are entering into an exchange with that customer. The customer pays you or your business for this exchange — a sale has been made.

However, in any business transaction there can be a timing issue. You may not get payment for your product or service right away. This creates a cash crisis, when a business is caught without sufficient cash in the bank to pay bills, salaries, loan payments, and other important things. So even though you’ve made a sale, it doesn’t necessarily mean you have cash.

For example, you might have an outstanding invoice in your consulting business, and the client keeps promising you the cheque is in the mail. What if one day overdue becomes three weeks overdue? Can you pay yourself this month? Can you pay your employee salaries? (PS There are industry statistics from Statistics Canada and Dun and Bradstreet that tell you the average time it takes in your industry for customers to pay you.)

In the other direction, your business might owe another business, like a supplier, for inventory.

Both accounts receivable and accounts payable will impact your cash flow planning.

What is cash flow?

As it sounds, the flow of cash through the business during a period of time. Cash is your most important resource and you must keep a close eye on it, particularly during the start-up stage. Conducting a cash flow analysis is an important step in determining the overall feasibility of your business idea. The examples we gave above illustrate the importance of timing cash flows — proper cash management would enable you to have reserves to cover cash shortfalls.

Did we mention the average time to profitability for Canadian businesses is between three and four years? Yup. Three and half years is the average length of time it takes to establish a business, and for that business to have enough sales to cover its expenses. Yikes.

Want to learn more? Check out GoForth Institute’s online small business training.

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Download GoForth Institute’s free small business resources

By Samantha Garner | June 1, 2019

free canadian small business resources

At GoForth Institute, we take pride in staying on top of the latest developments. In 2018, we refreshed our course content in response to sea changes in business and in society. We’ve also updated our comprehensive Entrepreneur Library, featuring a wide variety of articles on topics from customer experience, to finding the break-even point, to social entrepreneurship, to Lean Start-up – and more!

Comprehensive free small business resources for Canadians

Check out our updated Entrepreneur Library today – and while you’re at it, enjoy our other free small business resources: Getting Started Guides, checklists, business calculators, essential links, and templates!

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Small business blog posts we liked this week

By Samantha Garner | May 25, 2019

Small Business Founding Team

From fragrance to farming, here are some of the small business blog posts and articles we’ve enjoyed lately. Do you have any you’d like to share?

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Entrepreneurs: Don’t get sued

By Samantha Garner | May 18, 2019

tech business

When it comes to small business rules, regs and legalities in Canada, it can be confusing to know where to even begin to stay compliant. Thankfully, we’ve helped thousands of Canadian entrepreneurs stay on top of all the paperwork required to run a small business.

Permits and Licenses

As a business owner, it’s important to make sure from day one that you have all of the required licenses in place before opening your doors. Without them, you could be facing some pretty hefty fines. A license signifies that you are permitted to operate in your area, while a permit is a document that shows proof of compliance with certain laws. The permits and licenses that are required for your company will not only vary by industry, but also by city and province. You may require a municipal and provincial license to operate your business. Most businesses need a license of some sort to operate. License fees are required, so be sure to budget for this, especially for signs and company vehicles.

Industry Canada runs an online service called BizPal which helps you find the licenses required for your operation within particular areas of Canada. You may also be required to contact local authorities like Development and Building Approvals, Health Services, Fire Department, Gaming and Liquor Commission, Police Services, and Motor Vehicle Industry.

Business Number (BN)

A business number (BN) is something you’ll need for GST/HST, payroll, corporate income tax, import/export or other (registered charity, excise tax, excise duty, insurance premium tax, or air travellers security charge) business accounts with the Canada Revenue Agency. When registering your business, you will be assigned a business number. This business number will have 15 digits, consisting of two parts: the registration number and the account identifier. Your account identifier may be either RT (GST/HST), RP (Payroll Deductions), RC (Corporate Income Tax), or RM (Import/Export) and will be followed by a 4-digit account reference number. You’ll need your business number when making payments or enquiries related to your account. While the whole thing might sound complicated now, registering for your business number is easy — it can be done by phone, internet, fax or mail.

Rules and Regulations

Some of the most important regulations you’ll need to follow will be the local bylaws that may affect your business operations. Examples include smoking bylaws and alarm system bylaws. Bylaws may be updated and renewed often, so keep up to date on this information. For details about the regulations of your area, contact your provincial, town or rural municipal office.

Other regulations that must be followed include land use, zoning and building regulations. Be sure that your company complies with zoning and building regulations before committing to any land use or renting. Zoning is actually often a prerequisite to licence applications. Watch for any additional taxes you may have to pay for your business, including a business tax for companies operating in their own facilities. The Government of Canada provides some excellent guides to starting specific types of businesses, including many of the required rules and regulations, on their website.

Product or Service Liability

Product or service liability refers to the extent to which your company is obligated to make compensation to your customers for loss related to personal injury, property damage or other harm caused by the product or service that you offer. Things that you could be liable for include negligent packaging or product design; failure of the product to be safely used for the purpose it was intended for; environmental damage; failure to adequately warn against misuse; or inadequate product or service testing. Service companies can experience liability due to failure to fulfill requirements or inadequate performance. Be sure to speak with a lawyer to develop strategies to protect yourself from potential lawsuits. Insurance policies often include a general liability policy that can help protect your company.

More about government compliance

For more info on things you’ll need to keep things above board, check out our online small business training, and these blog posts:

Types of business insurance

Intellectual property protection for small businesses

What you can do about small business fraud

Small business legal issues: Tips from entrepreneurs

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Be a great leader in your small business

By Samantha Garner | May 11, 2019

Group of people in a meeting

Whether you have one employee or a dozen, your role as a leader is to make the high-level decisions, inspire employees to be their best, and keep a cool head. However, as you’re well aware by now, small business does things a little differently. Change comes quicker to a small business; communication and recognition come easier; and there is often a greater workload divided among fewer people. This means that if you want to be a good leader in your small business, you’ll have to develop some specific characteristics and skills.

Emotional stability and maturity

Stress and frustration are dealt with constantly, so it’s important to be able to face issues effectively without flying off the handle or taking things personally. You should be able to absorb any major risks or obstacles as a leader, and keep it together during chaotic times. Show maturity by putting your own recognition secondary to that of your employees and company.

Risk management and decision-making skills

Here are some key tips to help you manage risk and make effective decisions:

  • Have a clear understanding of the decision to be made.
  • Consider the vision and values of the company.
  • Evaluate the consequences and outcomes of your decision.
  • Brainstorm as many alternatives as possible.
  • Evaluate the pros and cons of each alternative.
  • Be sure the appropriate person is making the decision.
  • Understand the timeline in which the decision must be made.

Enthusiasm and passion

Passion is contagious! Infuse the company’s vision and values into the company from the beginning, even through informal ways. You don’t need to be able to see the future, but your team needs to see that you’re excited to take on challenges and put in the work necessary to see the business succeed.

Thick skin and assertiveness

Learn to take criticism well, and show respectful assertiveness in your attitudes to help you gain respect and motivate others. But don’t hog all the leadership! Being able to delegate and supervise effectively, instead of controlling and micro-managing, are very important traits. Empowering others to make decisions and handle responsibilities will allow the company to run smoothly while you’re away.

Giving employees the power to make certain decisions on their own is a great way to prove you recognize the value of your team.

High standards and the ability to recognize achievement

You must have high standards for yourself and for others and recognize the potential of your team. You should always try to do your best and encourage your team members to do the same. Be sure to recognize achievement and develop a welcoming corporate culture.

Good conflict resolution skills

When you do have to deal with conflict, do so maturely and productively. Look for a win-win situation whenever possible. You should also take time to uncover the real reasoning beneath trivial issues and recurring disagreements. Stick to your word when you make promises or plans, so your employees have a consistent and reliable leader — this seemingly simple task alone will diminish a great deal of conflict.

Understand differences in character and psychologies, and adjust your response to the employee’s personality and preferences.

Leading by example

It’s a bit cliché, but it’s cliché for a reason. If you’re always late for work or unprepared in meetings, why should your employees be any better? Nobody’s perfect, but a great small business leader is one that inspires employees through action.

Sound like a superhero yet? You can definitely get close to being one! Being a great leader is one step in the journey of entrepreneurship. For more business skills, and advice on how to guide your business to success, sign up for our online training today!

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