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Upcoming SBAC Events

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Small Business
Advocacy Council

20 S. Clark, Suite 500
Chicago, IL 60603
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201111

November 2011

How to Budget for a Small Business

Cash is king. Liquidity is the single most important aspect of a business; it is the life blood keeping your business alive.

Liquidity can be found in several ways:

External Sources:

Equity: The initial period most business involves a certain amount of cash burn. Estimate how long you believe you will generate more expenses then revenue, double that number, and try to start your business with that amount of equity; things always take twice as much time and money as you think.

Line of Credit. It’s always best to get a line of credit when you don’t need one. A line of credit will help you fund the time-gap between paying for inventory and receiving the cash from the sale of your product.

Internal Source:

Collecting A/R faster: hire a dedicated collection person. Revenue means nothing in the absence of collections, and you’ll likely be too busy finding new business.

Turn inventory faster: if you have any stale inventory, sell it for a discount. So long as you sell it above cost it won’t hurt you, and the liquidity boot may come in handy.

Pay A/P slower. Generally not a good idea, but in a pinch call your vendors and let them know you need to hold a payment for a couple weeks. A courtesy call will go a long way; you wouldn’t want to be surprised by a late customer payment.

To preserve liquidity you should do the following:

IRS Announces the Voluntary Classification Settlement Program

On the heels of the U.S. Department of Labor’s announcement that it was going to share independent contractor misclassification information with the Internal Revenue Service (“IRS”), the IRS recently announced the implementation of the “Voluntary Classification Settlement Program” (“VCSP”). The VCSP is intended to encourage employers who have misclassified workers, for a relatively small payment to the IRS, to reclassify those workers as employees for federal employment tax purposes. In effect, this allows employers to avoid all but 10% of the past employment tax liability that the companies would have owed for prior years. The IRS will also not conduct employment tax audits of the companies for prior years with respect to the classification of the workers.

Sound good? Well, in certain circumstances, this may be appropriate. However, employers must carefully consider all potential ramifications before participating in the VCSP. For example, reclassifying workers as employees raises many issues other than federal employment tax issues, including retirement benefit plan issues, state tax classification issues, unemployment and workers’ compensation tax issues and health and welfare benefit plan issues. Companies choosing to participate in the VCSP will also have to begin providing employee benefits, comply with wage and hour laws and comply with all other federal and state employee obligations to the reclassified employees. And, since the VCSP would not provide any amnesty for violations of other laws, such as state or federal overtime laws or state tax law violations, care must be given before deciding to whether to participate in the VCSP.

Small Business Contracts with State to Increase thanks to SBAC Efforts

State Representative La Shawn Ford (D-Chicago) recently convened the Illinois House Small Business Committee to address the implementation of HB 3185. As a result of strong advocacy efforts by the Small Business Advocacy Council (SBAC), HB 3185 was signed into law this past session requiring 10% of all state procurement contracts to be issued to small businesses.

SBAC lobbyist Dan Johnson, who requested the hearing, noted that convening a hearing on legislation after it becomes law is rather unusual, but was necessary to ensure that obstacles and challenges are identified and addressed.

“Not only has Representative Ford been instrumental in getting this initiative passed, but he is also committed to working with state agencies to ensure it is implemented successfully,” Johnson said. “As a small business owner, Representative Ford has proven over and over again he is a true advocate of our cause.”

Representative Ford requested all state procurement officers attend the hearing to share current data on small business contracts and chart a plan to meet or exceed the 10% requirement. It was noted at the hearing that small businesses only attain 2% of state procurement contracts. And while small businesses number over one million statewide, about 6,000 small businesses are registered with the state, and only 2,100 small businesses are active vendors. Major challenges for small businesses in obtaining state contracts include lack of capital and resources to complete work, as well as lack of education in navigating a complicated and cumbersome registration and bid process.

Many positive suggestions arose out of the hearing to streamline the process and encourage more small businesses to participate, including:

How to Budget for a Small Business

Cash is king. Liquidity is the single most important aspect of a
business; it is the life blood keeping your business alive. Liquidity
can be found in several ways:

 

External Sources:

• Equity: The initial period most business involves a certain amount
of cash burn. Estimate how long you believe you will generate more
expenses then revenue, double that number, and try to start your
business with that amount of equity; things always take twice as much
time and money as you think.

• Line of Credit. It’s always best to get a line of credit when you
don’t need one. A line of credit will help you fund the time-gap
between paying for inventory and receiving the cash from the sale of
your product.

 

Internal Sources

• Collecting A/R faster: hire a dedicated collection person. Revenue
means nothing in the absence of collections, and you’ll likely be too
busy finding new business.

• Turn inventory faster: if you have any stale inventory, sell it for
a discount. So long as you sell it above cost it won’t hurt you, and
the liquidity boot may come in handy.

• Pay A/P slower. Generally not a good idea, but in a pinch call
your vendors and let them know you need to hold a payment for a couple
weeks. A courtesy call will go a long way; you wouldn’t want to be
surprised by a late customer payment.

 

To preserve liquidity you should do the following:

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