Do you have the cash to keep your business flowing?
Do you have the cash to keep your business flowing?
A whopping 82% of small business failures are due to issues with cash flow. Accidents involving employees and customers can stop your growth in it tracks, or worse, shut your business down completely.
Are you covered?
Cash flow is money flowing in and out of business every month. Sometimes it appears that cash flow may seem moving from the business most of the time for some businesses. It does move both ways.
What is Cashflow
- Money is paid to the business by customers for products or services by the business. If customers don't pay at the time of purchase, it may come from collections of accounts receivable.
- Money is made out in payments for expenses, like rent or a mortgage, monthly loan payments, and payments for taxes and other accounts payable.
Cash vs. Real Cash
For certain businesses, such as restaurants or retailers, the business takes cash from customers and sometimes pays its bills in cash. Cash businesses will have issues keeping track of how it flows unless it is properly tracked and recorded in a journal. The most common tracking method is the cash registry machine, but they may not track income unless invoices or other paperwork.
A business is in a "surplus" situation when more money is coming in than is going out. Alternatively, when more cash is going out than coming in, the business is in a "deficit" situation and in danger of being overdrawn. When this situation occurs, the business will need to find money to cover the overdrafts.
Why Cash Flow is So Important
The biggest reason why small businesses fail is due to depleted capital. "Inadequate cash reserves" are the leading factor start-ups failed. A business operates with a lot of uncertainty. When the revenue does not flow as expected in a month or a few months doesn't mean it ends there, but when a business has no reserve for the period, it spells the end of the operation.
Why does cash flow matter?
Cash is the lifeblood of a business. There is a saying in business, "revenue is vanity, profit is sanity, cash is king."
Without capital on hand, any business will stop working. Managing a business cash flow is all about managing cash in hand, getting them faster, and control spending.
Budgeting a cash flow is a foundational building block of business finances. Get the forecast done well will lead a path to improve efficiency, better margins, profit and grow a healthy business.
Starting a Business: Cash flow issues are most difficult when starting a business due to many initial expenses and without sales or customers. Having a large reserve of capital and a temporary credit line will help improve the cash flow issue. A new business must have at least six months of reserve to survive. Without sufficient capital through the initial period, the business is likely to fail. Without history, new businesses are not likely to get credit from suppliers, but on the other hand, customers may want to pay on credit, giving the new business a "cash crunch" to deal with.
How do you manage cash flow?
To make sure you've got enough cash flow to keep your business running, follow these seven steps:
- Bookkeeping Matters. Keeping close monitoring of bookkeeping is the best and fundamental way to understand all its financial transactions.
- Cash flow statements. Ask an accountant for help with the cash flow statement, or learn how to use spreadsheet software.
- Analyze cash flow. A business needs to understand how a cash flow works, how money is moving through the business.
- Manage a positive cash flow. Always ensure sufficient balance for payment and void penalty charge. Always look for a cheaper and alternative capital source when running low in cash flow ahead of time.
- Curb unnecessary spending. Avoid overspending to increase cash flow and postpone spending when cash flow is tight. Consider every purchase and paying for expenses at strategic times.
- Accounts receivable. If a business sells on credit, the account receivable must be closely monitored and collect all outstanding promptly for cash flow.
- Regular Review. Often review and update the cash flow statement will help get at spotting opportunities to increase cash flow—and nip shortages in the bud.
- Risk Litigation. If a company heavily sells on credit, always consider purchasing ARI, Account Receivable Insurance. This would help the company manage risk should a big client get into default. The insurance would provide at least 90% uncollectible credit from the defaulted client.
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A small business owner insurance policy (BOP) might contain a few coverages bundle. The following are the 8 most common insurance coverage types that business owners should be familiar with.
- This coverage provides protection if you cause bodily injury, property damage, personal injury or advertising injury.
- Having as part of small business owner insurance to protection when business Income and Extra Expense at risk
- Protect against a business when found responsible for an issue with one of the products they sell.
- If a business gives professional advice or provides a professional service, it should probably carry professional liability insurance.
- Protect against hackers or breach of valuable data.
- Protection against equipment breakdown can be furnace, machine and need time and money for a replacement.
- protect against your property or stocks
- bundling a small business owner insurance package to protection against business use vehicle
Employment Practices Liability
Electronic Data and Equipment
Valuable Papers and Records
Blanket Additional Insured
Limited Property of Others Liability
Short-Term Pollution from Pollutants at Job Site
And more, ask your insurance broker for details!
From time to time, a business might have simple needs to start out but might realize the need to fill gaps as the situation changes.
As an insurance broker, we'll help small business owners to decide what is needed and best fit for their insurance .
Suppose you're only going to consider one kind of insurance protection for your small business with the small business owner insurance. In that case, it should probably be a commercial liability, as every business is at risk for liability claims. Ask your insurance broker for details.
Commercial liability coverage protects against two legal liability claims:
While operating a business, you may be found financially responsible for actions or accidents that damage someone's property.
As any insurance broker will advise you, if found legally liable for such, a business may face costly legal expenses and damage your customers' reputation.
When someone is injured during business operation or location, as a result, legal liability will claim against small business owners. It assumes that some sort of negligence resulting in someone getting hurt, but that doesn't necessarily mean it was the business owner's fault. Sometimes, it could also mean someone else may be responsible. However, bad things happened on the business owner's property, will still get a liability lawsuit against them.
Lawsuits are time-consuming, expensive, and may result in your business being found financially responsible for costs associated with the pain and suffering, medical bills, lost wages, and legal fees. Our insurance broker will be able to provide you with more details.
Canada has seen some severe natural disasters over the last few years. Floods and wildfire are common in why business interruption insurance is so crucial for many small businesses. The small business owner insurance package business interruption insurance from our insurance broker is designed to help keep enterprises going after a significant loss. It provides financial relief to cover the business expense, payroll, and others until the business returns.
Business continuity planning and business interruption insurance are what all small business owners, startups and entrepreneurs should seriously consider. It is essential to manage the risks any business faces and prepare by developing a plan highlighting steps to minimize a loss's consequences.
Product liability is particularly crucial for any businesses that provide or manufacture product.
Product liability refers to circumstances arising from a product a business carries. Problems are traced back to the company that sold or manufactured the product, causing the consumer to suffer financial losses.
Suppose a business is found responsible for such an issue with any of the products they sell. The company could be tangled up in a costly, time-consuming lawsuit.
Product liability insurance will protect the business from such lengthy legal and medical costs. Always discuss with your insurance broker for the small business owner insurance package for your insurance needs.
The most common lawsuit that will result in product liability claims includes:
- Defective or product design fault
- Products that cause bodily injury to a consumer
- Effects that cause property damage
- Illness caused by food or beverages
Suppose a business is found responsible for an issue with one of the products they sell. They will find the company tangled in a costly and time-consuming lawsuit. Talk to your insurance broker to find out more.
Suppose your business doesn't sell any products but instead provides a professional or creativity service, you should have professional liability insurance with our small business owner insurance package from our insurance broker.
This coverage is commonly known as errors and omissions insurance or Malpractice Insurance for medical professionals.
Professional / Malpractice/error and omissions insurance helps protect a business from claim over financial loss due to its service.
The sample below shows cases resulting in E&O claims - from a US legal journal, based actions and are for illustration purposes only.
Software company developed risk modelling software and supply to a customer that relied on it for financial decisions. Following the client's economic collapse and bankruptcy, they sue the software company to provide inadequate warnings where the software is supposed to provide. The legal defence costs over 1 million over a few years, and the client was indemnified for 3.8 million.
Some examples of businesses below should have this coverage include:
- Software designers
- Graphic designers
- Web designers
- IT technicians
- Insurance Brokers
- Financial advisors
- Public relations representatives
Cyber risk coverage
See this section about cyber insurance
Most small businesses would likely acquire equipment for daily operations. Tools such as an industrial table saw or an electric oven — Should any of the business equipment broke down, the business stop. Just like throwing a wrench in the operations, equipment breakdown insurance will help repair or replacement costs when such incident suddenly happens without warning as long as it is an insured peril on your small business owner insurance package. Ask your insurance broker for more detail.
Whether you're a new startup or business has been running for years, it's essential to ensure your property is adequately covered. Business property, including the building you operate from or owned, and everything inside or outside, are appropriately protected from loss. Commercial property insurance could help repair or replace equipment in the event of an accident. It allows businesses to cover their inventory, furniture, electronics, including computers, if they suffer a covered loss.
Should there be damage to your property, even those extended outside of the building, such as fence and advertising signs, trees and shrubs, will be covered accordingly. Always review your small business owner insurance policy that these properties are within the insured peril.
Bear in mind. However, work of art, anything in progress or data entered into the computer will not be covered unless it is declared explicitly in your property insurance policy. When in doubt or need to add discuss these work to your insurance policy, always talk to your insurance broker.
Having the right policy will help mitigate the long-term effects of the loss and limit your business' downtime. This allows you to maintain your business' continuity and protect your relationship with your clients or customers.
Suppose damage is done to your property as a result of an insured peril in your small business owner insurance package. In that case, the right policy can help mitigate the long-term effects of the loss and limit your business' downtime.
Which may include business vehicle or fleet auto insurance as bundle for small business owner insurance. Find out more from your insurance broker.