Understanding Cash Cycles

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Business Plan Template

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It’s important that you have a road map for your new business. Our business plan template will allow you to generate a tailored business plan that’s right for your business.

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BUSINESS HEALTH CHECK

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Start-Up Cost Calculator

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Use our template to find out exactly how much it will cost to start your business, from set-up costs to working capital.

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SBA Cash Flow Template - 3 Year Forecast

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How to Protect Your Intellectual Property

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Help and Support for Your New Business

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There's a lot of on-going help available for new businesses in Hawaii – including government departments, financial institutions, business associations and non-profit organizations.

Be sure to explore different resources to find what you need to support your business growth at every stage. Ask other business owners for their recommendations on who they have accessed as well.

Professionals

There are a range of services that you can access, and who you choose depends on your own capabilities and type of business. If possible, choose advisors who have several other clients in your industry because they can often pass along that experience to your benefit. Even better if they specialize in your specific business sector.

Examples include:

• Accountant - This is your go-to person for advice on major financial decisions, tax filing, tax planning, and, eventually, preparing for business succession. While an accountant will charge for their services and advice, it’s usually worth the investment.
• Lawyer - This is how you prevent legal hassles down the road. Your lawyer can set up a company for you, draft a sales agreement to use with customers, review your website for legal issues, create contracts for your employees and help you to protect your intellectual property.
• Business advisors and coaches - A business advisor is someone who will answer general business questions for you. A business coach will work with you to set business goals and encourage you to achieve them. Ask your colleagues for a recommendation.
• Industry groups - You may want to join an association that represents your industry to stay on top of industry news and regulations, and to connect with your peers. Industry groups also provide professional development and learning opportunities for members.
• Chamber of Commerce - Your local Chamber will host business networking events, seminars, workshops, award dinners and other activities designed to help business owners learn and connect with each other. Check out the Chamber of Commerce Hawaii to explore membership.
• Management consultants - These are typically category-specific advisors brought in to help you address a particular challenge.
• Business Mentors - A business mentor may be an experienced businessperson you’ve recruited to guide you through the process of starting and growing your business. You may find a business mentor through your local business media, Chamber of Commerce, business support group or professional network. Consider signing a mentor agreement to commit both parties to the process, establish the time commitment and define responsibilities.
• The National Federation of Independent Business (NFIB) - This member organization offers a wide range of business services including advice, financial expertise, support and a powerful voice in government.
• Business banker - Remember that your banker will have a wide range of business experience that you can call on to help when starting your business.

Hawaii Small Business Development Center (SBDC)

A helpful resource for new and existing small business owners, your local Small Business Development Center provides business support.

Key support elements include:

• Advice from business advisors on various business topics, including marketing, finance, human resources and operations.
• Research and analysis services to help you conduct market research, feasibility studies, business development strategies and industry studies.
• Workshops and seminars – The Hawaii SBDC offers a regular schedule of affordable workshops, conferences, and special events designed to teach practical, hands-on small business management skills. 

There are several SBDC locations throughout Hawaii. Visit the Hawaii Small Business Development Center website for more details.

SCORE

Funded by the US Government, SCORE is a non-profit dedicated to helping small businesses by offering free mentoring, workshops, events and content to help you start and grow your business. Other resources include:

• A resource library full of great links to content rich websites.
• SCORE Women which provides support education and fellowship for female entrepreneurs.
• A range of success stories profiling local businesses that have succeeded.

Useful business websites

• www.sba.gov/offices/district/hi/honolulu - The US Small Business Administration (SBA) offers business counseling, learning opportunities, business resources and funding programs to support new and existing small businesses.
• https://ambergrantsforwomen.com/free-grant-tips-hawaii/ - Business women from Hawaii are eligible for an Amber Grant to help fund their enterprise.
• www.usgrants.org/hawaii/small-business-grants - US Grants is a website directory of small business funding available to entrepreneurs in Hawaii and other states.
• http://cca.hawaii.gov/breg/ - The Business Registration Branch of the Department of Commerce and Consumer Affairs is the place to go to register your corporation, limited liability company, general partnership, limited liability partnership or limited liability limited partnership in Hawaii. The Branch also registers trade names, trademarks and service marks.
• www.irs.gov/businesses - The Internal Revenue Service (IRS) website provides tax information for businesses, including filing taxes, record keeping responsibilities, hiring employees and opening business tax accounts.

Summary

Spend some time online to research these resources and discover others. Check out local business organizations and services available to help your new enterprise thrive in Hawaii. Read trusted business publications for a source of growth strategies, business tips and inspiration.

Next steps

• Contact one of our friendly Business Relationship Managers to see how we can help your business.
• Before you join any association or group, ask to attend as a guest to see if the organization can bring value to you and your business.
• Ask experienced small business owners to recommend resources they used to get started.
• Attend local business conferences, trade shows and franchise shows to discover additional resources to support your business journey and build your business network.
• Use social media to follow trusted business advisors, organizations and associations.

Protecting your business from theft and fraud

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There are a number of risks that you’ll face in business – from employee theft to a competitor using your intellectual property. It’s your responsibility to safeguard your business from anything that may impact your survival and growth.

Like most things in business, prevention is the best cure – a little planning now could save you a significant financial cost in the future.   Review the following list of some of the common issues faced by businesses.

Staff theft and fraud

To safeguard yourself and your business from being affected by employee misconduct it’s important to take proactive steps to ensure opportunities for fraud are limited. A written policy of accountability and robust cash-handling systems will reduce the risk of theft or fraud.

• Stealing products, or stealing and selling to others at a lower cost.
• Stealing work time (such as an employee consistently leaving early, or wasting time at work and keeping other employees from getting their work done).
• Excessive and unauthorized employee travel costs and expenses.
• Employees filling up their personal car with gas using the company-issued fuel card.

Solutions to protect your business 

• Outline specifically what’s considered theft in any employment agreements with staff and what is deemed misconduct. Taking one piece of photocopy paper home may be ok, but taking a ream of paper may not be.
• Train your managers to spot theft – a vigilant manager is usually the first and immediate line of defence against employee misconduct.
• Regardless of who it is (even a key employee) you must be seen to take action, otherwise you’re viewed  as condoning the action and it becomes an accepted practice.
• Limit the number of employees assigned a business credit card set card spending limits.
• Set up stock control software and systems to track all products in and out of inventory.
• Require two people to sign products in and out of inventory management systems.
• Remove cash handling by going online for all receipts and asking business customers to pay online.
• Set up stock control software and systems to track all products in and out.
• Deposit cash to your business account at least daily, if not more often depending on the amount of cash you carry.
• Pay for expenses via a business credit card rather than using petty cash.

Customer payments fraud

Customer payments fraud is simply any kind of customer deception that leaves you paying for losses out of pocket.

• Check fraud - A person commits fraud by writing several checks in a short period, knowing there are insufficient funds to cover all of them.
• Credit card fraud - When someone illegally uses another individual’s credit card or uses a stolen card.
• Counterfeiting - A person could attempt to pass counterfeit cash or counterfeit checks at your business. 

Solutions

• Perform credit and security checks on any credit you offer to other businesses, and don’t forget to check the debt history of the owners.
• Only accept advance payments, or at least a deposit before commencing work to cover your material costs. If it’s possible and relevant, ask for progress payments on a regular basis so you’re being paid as you go.
• Do not allow employees to sell to friends and family (who could be receiving large unauthorized discounts).
• Educate your staff on common fraud techniques and how they can spot them. These include a customer having ‘forgot’ their photo ID so you cannot check their card details, or buying a small amount of product with cash (to trust them) then buying a large volume with a stolen credit card.
• Allow only a select few employees to accept payments from customers, and regularly change these employees so it’s not the same person each time. 
• If it’s relevant only accept electronic payments and do not accept checks (if bad checks are an issue for your type of business).

Theft of ideas or brand

• Copyright – protection for original works of authorship, including literary, dramatic, musical, and artistic works.
• Trademarks – protection for words, phrases, symbols or designs that identifies the source of the goods or services.
• Patents – protection for inventions or discoveries .

Theft of intellectual assets

• Sign a Non-Disclosure Agreement with key clients to reduce the chance they will tell everyone how you do business.
• Draft confidentiality agreements and restraint of trade clauses with staff to deter them from taking your trade secrets to a competitor if they leave.
• Keep your best ideas to yourself.

Next Steps

• Identify the key risks in your business.
• Involve employees to detect any risks they may see.
• Develop a plan to mitigate the key risks to reduce the chance of them happening.
• Make sure implement these risk reduction tactics as part of your operating procedures.

Where to Get Funding to Start Your Business

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Once you have a solid business plan, including how much money you need to start your business, one of the next steps is to figure out funding sources to launch your business. Here are ideas to consider to finance start-up costs.

Personal Savings

Pulling from personal savings is a common way to invest in your business. You won’t incur any borrowing costs if you can invest some of your own money. You can also consider:

• Look at what you currently own that you could sell to raise funds for your business, such as vehicles, furniture, even sports equipment. Selling personal assets can be an effective way to increase your cash base.
• Cut personal expenses or find other ways to raise the cash you need, such as picking up part-time work.

Funds From Friends and Family

Money from friends and family is a common way of raising the funds you need. But remember, if your business fails, borrowed money from friends or family might sour personal relationships. Be sure to put any financial agreement with a friend or family member down in writing. Clarify when the money is to be repaid, along with any interest.

Borrow What You Need

There could be assets or set-up costs that you can delay paying by borrowing equipment or machinery or working with existing businesses to use any of their spare capacity until your business is big enough to buy your own.

Money From the Bank

You can borrow money from the bank to get your business started. Bank financing comes in several options. You can take out a loan and pay it back over time, an overdraft facility that lets you dip in and out of debt when you need it, finance equipment or apply for a business credit or debit card for short-term expenses. Talk to an American Savings Bank Business Relationship Manager about our range of business lending solutions.

Before you apply for business financing, it’s important to have all your financial information in hand:

• Purpose: What you want to do with the cash.
• Funding sources: How much you think you’ll need to borrow and how much you’re contributing yourself.
• Loan security: what you’ll use to secure repayment of the loan, if anything.
• Repayment plans: How you intend to repay the loan and the schedule of repayments in your cash flow.
• Existing debt: If you’ve got any other debt that may impact on your ability to repay.

Other Sources

There are several other ways to fund your business, such as outside investors, crowdfunding and government subsidies that can help provide essential funding to launch your business. Here’s some information on each.

Outside Investors
You may find people you know who want to invest in your business. Often called “angel investors,” these people are usually business owners in search of investment opportunities with promising businesses. In return, they usually expect a share in your business, a percentage return on the money they’ve given you or both.

• For more information, check out the Angel Capital Association and other groups such as www.hawaiiangels.org.

Venture capital companies are professionally run businesses that look to invest in companies they anticipate will be sold to the public, or to a larger company, at a high rate of return. If your business is in a fast-growing industry with a large market potential, you may just catch the eye of an investor.

• The National Venture Capital Association (NVCA) is a good place to start.

Crowdfunding
Crowdfunding allows you to profile your business and attract investment—or loans—from a range of different people who wouldn’t normally be eligible to invest in new businesses without a prospectus. You receive investment in your business through a crowdfunding platform hosted online, usually in return for shareholding.

• Kickstarter is a good example of how this works.

Government grants and subsidies
The government can sometimes provide funds for businesses if you qualify. This includes loans, grants, export assistance and other initiatives. The Hawaii.gov website offers information about different grants and financing options that may be available to your business. The SBA offers loan programs to small business owners. If you are interested in applying, be sure to visit American Savings Bank, as we are an accredited SBA loan provider.

Summary

Every dollar you can save when starting your business is one more dollar you won’t have to raise. Unnecessary overhead costs are the last thing you want to deal with, so nonessential expenses should be cut from your budget. Work with your accountant to see where you can save money on start-up expenses.

Next Steps

• Be careful not to over-estimate your start-up expenses and under-estimate your revenue during the first year. If the reverse happens and the business succeeds early on, you will be in a favourable financial position.
• Use the start-up costs calculator at American Savings Bank to estimate how much money you’ll need to get your business up and running, and then identify your possible cash gap.
• Contact one of our American Savings Bank Business Relationship Managers to see how we can help fund your business.

Ways to Manage Cash Flow

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A business can survive for a short time without sales or profits. But your business needs cash to pay bills and to continue operating. Since cash flow issues can cripple a business, the more warning you have of peaks and troughs, and the more time you have to deal with them.

It may sound obvious, but if you never run out of cash and can pay your bills, you’ll likely never go out of business.

Watch for Early Warnings

From budgeting to early warning systems, there are many ways to track your money. Consider the following:

Use Accounting and Cash Flow Software

Accounting software makes it easier to prepare budgets and forecasts; you can access information coming straight from your bank account. You can also quickly update a monthly cash flow forecast and make “what if” calculations.

Prepare Realistic Cash Flow Forecasts

If you prepare and update monthly cash flow forecasts showing what cash you expect to come in and what cash will go out, you should know in advance when you might run into problems. Being able to spot any cash flow red flags in advance will give you time to correct any problems and make necessary adjustments.

Monitor Key Figures

Decide which profit warning signs hint at a deteriorating cash situation. Comparing short term performance measures to the long-term cash forecast can quickly reveal if sales and profits are going to plan. For example, you could monitor every week or month the following:

• Watch your gross profit margin to ensure it’s not slipping. This is often caused by paying too much for raw materials or products.
• See if you or your staff are offering discounts that are too high to beat competitors.
• See if raw materials or inventory levels are slowly building up. This can signal either a slowdown of sales or products that customers aren’t interested in buying.  
• See if customers are exceeding their credit limits and are paying their invoices too late.

Grow at the Pace You Can Afford

Before taking on any large financial commitment, including major new orders or equipment purchases, check that you will have sufficient cash flow to pay. More business may seem attractive, but you don’t want to run out of cash to fund this growth.

Non-Financial Red Flag Warnings

Develop red flag systems on less obvious signals to warn you, such as:

• New lead queries are falling, or customers are taking longer to confirm a sale.
• A substantial or loyal customer stops buying from you or they’ve switched to your competitor.
• Fewer phone queries or less web traffic or fewer new followers on social media.
• A decrease in local foot traffic, which can lead to long term lower sales.
• A shift in consumer behavior.
• A new competitor opens nearby and is targeting your customers.

How to Reduce the Chance Your Business Runs Out of Money

There are a number of ways to reduce the chance of your business running out of funds. The most obvious tactic is to have enough cash reserves to be able to ride out any fluctuation or downturn. Every business should always be looking to implement the following:

Get Progress Payments

When negotiating contracts with customers, make generating cash flow one of your primary objectives by asking for deposits or progress payments. Staged payments improve your cash flow and protect you from total loss if a customer fails to pay.

Invoice Immediately

Improve your sales and profit margins by invoicing on the same day. Consider collecting payments using mobile payment options immediately after any work is complete. With larger customers, ensure you have purchase order numbers in advance so you can enter the customer’s payment cycle faster. If appropriate, follow up and confirm the invoice details and due date.

Have Strict Credit Control

Efficient credit control systems speed up cash collection and reduce bad debt, saving time and showing lenders and investors that you run your business professionally. Consider debt collection agencies or lawyers specializing in debt collection can be effective in difficult credit situations.

• Run a credit check on all customers before extending credit terms, even if it’s with a well-known business.
• Control how much credit you provide and with whom you provide credit. Consider using a credit scoring system and set appropriate credit limits for all customers so no one can put your business at risk by owing you substantial amounts of cash.
• Ask for deposits and partial payments before you start any work or supply products.
• Monitor and follow up on late payments systematically by tracking down the largest debtors first.
• If charging interest on late payments, state it on your terms of trade and have the customer sign the agreement.

Limit Expenditure

Regularly ask suppliers to renegotiate. Consider carefully when purchasing capital equipment or any other large-scale purchases. Ask yourself whether you really need the equipment, or if it can be borrowed, leased or rented instead.

Accurate Stock Control

Good stock control can release substantial sums of money as it prevents you from having large amounts of money tied up in inventory or raw materials. Use inventory software to hold just enough stock to service customers on an on-going basis.

Summary

It is important to be aware that even if you are profitable and sales are increasing, a lack of cash flow can still significantly harm your business. Create contingency plans, including how much additional working capital you’ll need to fund any increase in sales and the associated costs of job growth. Have cash in reserve or a plan to access capital to remain in business. Finally, monitor that you’re not withdrawing too much capital so that it puts your business at risk.

Next steps

• Contact one of our Business Relationship Managers to see how we can help your business grow.
• Predict any cash flow issues in advance with a cash flow template or your accounting software.
• Conduct an audit of your business cash position and make a list of actions you can take to reduce any cash stress.
• Build a cash reserve over time to weather any short-term crisis.