Handling invoices and managing receivables is a task every small business owner dislikes. Not only is it time-consuming, but more resources are spent following up on invoices than necessary, and even worth. Reliant Funding is committed to assisting restaurant business owners across all verticals achieve their dreams, and we reached out to one of the best in the business with the goal of providing actionable intelligence to small business owners across the US.
Our most recent discussion is with Gene Marks, the owner of Marks Group and small business guru. Our conversation with him uncovers tips and strategies to handle invoices for small business industries and other financial opportunities small business owners should be aware of.
Our full conversation is below. It has been edited for brevity and clarity.
The key takeaways from this discussion are:
- Low unemployment is affecting not just yours, but most small businesses
- Sell your service as time blocks to clients and customers
- Hire an accountant for your small business
- Build up cash reserves and keep immediate financing on hand
- Start a health-savings account for your employees
- Set up a 401k plan for your employees
- Explore the Work Opportunity Tax Credit option for your business
- Offer incentives for people who pay back early
Reliant Funding: Capital and cash always is the lifeblood of any business. One of your articles covered a recent debt that two thirds of business owners are typically stressed about cash flow and cash flow concerns about how their business is going to get that in and invoicing. So before we jump into our own questions on this, what would you think are the most frequent questions and the most impactful answers to those questions that typical small business owner is facing today?
Gene: When you’re running a small business you’re a breath away from going out of business. The biggest conversation we have everybody is looking for people to hire. Many clients have open jobs available and can’t find people can’t keep them around. That’s like a big issue. As we’re starting to head into the election year again, I do a lot of writing for The Hill so certain political and economic issues start coming-what’s going to go on with the presidency and the new Congress, will there be any workplace rules affecting me potentially, will tax reform continue on my health insurance bill going to be going up and continue to go up.
So those are all you know common questions that come up. There’s no stat answer to any of them other than yes yes and yes. But these I mean those are the concerns you know most of my clients and most business owners minds right now. We compete against larger companies and government and whatever and they can offer more lucrative benefits better health care whatever. You know it’s tough. So with unemployment so low, that’s a great thing for the economy but something that’s not so great for the typical small business owner.
Reliant Funding: What are the best strategies that you come across between your individual work group that your company and all the businesses you work with for handling invoices?
Gene: Yeah you know there is an invoice gap. So I’ve learned a few tricks over the years. I run a service and in our business we sell blocks of time. So if you are in a service business and this is not an unusual thing to do. You can say listen if we’re gonna provide 10 hours services we’d like you to buy a block of 10 hours in advance and we charge our time against that block. And then we you know when we use up the block we then have an accounting report for our clients and then we have them by another block of time. Our minimum block is four hours or blocks can be as much as 50 hours.
I always point them to other companies from Microsoft to your insurance company that does the same thing. You know they ask people to pay stuff in advance and I mean if you want support for you know Microsoft Windows or Office depending on the plan you’re on, Microsoft’s going to ask you for your credit card before you get started. So that has helped us a lot with our cash flow. Now if you’re not in a business that sort of helps you do these kinds of getting paid in advance consider you asking for a deposit.
So if you’ve got a big job or a big project or a big order you say well you had a place this autumn we’ll need 20% down and then the remainder you know on when we deliver the order. The more you can get upfront the better and you’ll find that getting that money upfront really helps you with your cash flow. The other thing that I think is really important is having credit available for you. Financing and funding have a working capital availability for yourself.
It’s crucial for a lot of businesses particularly if they’ve got know big transactions they’re doing or maybe your seasonal or you know maybe you’ve got a hot deal that you just can’t pass by but you need some money to buy some materials and whatnot. That’s why lines of credit and working capital exists. Some people use financing firms like Reliant, and people use credit cards. But having an available line of credit that you can use for short term purposes you have to pay the bills. That is like a standard thing that smart business owners do to even out their cash flow over the course of time.
Reliant Funding: The challenge of unpaid invoices is something that has to come up for every business you deal with. How do you talk to business owners about it?
Gene: Yeah. So our best strategy actually has to buy a big baseball bat and hire a guy named Phil. And that really hits wonders. No actually I actually do have some thoughts on getting team and credit and collection. First of all first of all I learned this lesson the hard way but it was one of the most important lessons I learned writing this business. If you are trying to collect your own receivables and if you’re like me you’re going to drive yourself insane. There was a period of time where we’d send out invoices and then I’d be looking at our receivables listing and there would be overdue invoices and it would I mean Joe it would drive me nuts.
You know I feel like we did this work and this guy’s not paying like what the heck. You know it would make me like you I would want to literally find a guy named Phil and a large baseball bat. I decided early on I was going to outsource this. So you know I have a bookkeeper and she’s really wonderful and she spends like 10-15 hours a week with us. I added a couple hours onto her schedule and said listen you deal with collections you deal with calling up the people and staying on them when they go overdue and that made such a big difference not only to our collection effort but just to my physical and mental health because she could this passionately follow up with clients.
I didn’t have to be involved and it kept me focused on what I do best. And I didn’t have to risk upsetting any potential clients that were just slow trying. And she did her job and I did mine. So just the number one piece of advice I can tell you is when it comes to collections have somebody else do it for you or it will drive you nuts. You know that’s absolutely number one.
Gene: It’s absolutely right. Outsourcing lets you focus on what you do best and let somebody else worry about it in the long term makes a big difference. That’s number one. Number two is you know this is the best way to avoid collection is to get the cash as early as possible. Right. That sounds simple. So it does amaze me how many people avoid not getting paid.
Now a lot of people are like oh no the credit card companies charge you know a transaction fee and they go and it’s a pain and an expense. But I have two answers to that. Number one is that whatever fees you’re paying for a credit card transaction could pale in comparison to the amount of time you’re spending and anxiety you’re going through chasing down some deadbeats for an open invoice.
You might as well get the money in earlier paying the credit card fees and then you get the cash in the bank. And number two which is actually what we do is that we offer the option. We’ll be like hey if you want to pay the credit card fee you’ll pay it. We’ll give an incentive to pay early by check or if you want to pay by credit card you pay it that way as well.
And that way we give some options out there for people that are paying the money. But if you know a person’s a good paying customer they’ve always sent a check in on time then you know you kind of talk down the credit card option a lot to keep sending you the check so you can pay the credit card fees so accepting a credit card is very important. So many things in business come down to that 80 20 rule you know like 80 percent if you look at your receivables listing.
Reliant Funding: What are the strategy tips you give to business owners that are facing equipment malfunction or equipment replacement and all other things that may result in a cash shortage?
Gene: First of all, cash is king. So I can only say this because I struggled for the past 20 years to build up the cash balance in my business and because I have I sleep easier nowadays than I ever did. And I think that’s a combination of experience a higher cash balance and probably a couple of shots of Jack Daniels before I go to bed. If you are an equipment intensive business like the ice cream store I mean forget about the wintertime just you’re in the middle of summer and one of your units go.
You know I mean that happens all the time. And then suddenly you know that’s a cost of doing business and you’ve got to build up cash reserves to accommodate that. The best way I could tell you is I have a client that’s in the construction business is a drywall guy and he’s this guy’s older than me he’s been a business for a thousand years and you know he is he lives very modestly very comfortably very good but he says you have to look over my business over a five to seven year cycle because in the drywall business and the construction business things go up and things go down.
Sometimes he’s got 50 guys on his payroll and some guys just got 10 so he’s got to be able to have the cash reserves to float him through those air those times because again just because you have a good year doesn’t mean next year is gonna be good. There’s always going to be those expenses over a period of time. So build up your cash reserves and I think it’s important but you do need to have financing available.
The only advice I give you is whatever line of credit that you have and if you have a good financing person they’ll help you with this. But if you have a line of credit facility available always say to yourself what would happen if I had to take out the maximum amount of this facility. What would be my debt maintenance would I be able to cover that going forward assuming the worst case scenario. Because you don’t want to get in too deep with any line of credit. So you just want to make sure if you’re going to borrow your borrowing enough that you can you’ve got the ability to repay. And again I think a good financing company will help you make that decision.
Reliant Funding: How are the things that are going on in Washington affecting what a business should be doing with their invoicing?
Gene: Yeah I mean you know when you talk about the things going on in Washington right now there’s you know again we’re talking about 2019. The Congress is going to be doing some things that will impact all of us. The Department of Labor, not Congress, is going to be increasing overtime wages that we’re expected to pay. There’s a lot of talk about minimum wages. The president’s budget as you know you get parts of it that are including potentially providing paid time off to some of your workers.
There is no infrastructure spending that will need to be taught and who knows what happens in D.C. as far as the Congress is going on a trade and relationship with China and Europe and all that. So none of those are invoicing perhaps they’re just business conditions in the environment that we’re in right now at least through the next election is that it’s definitely a pro-business and a business friendly environment. That doesn’t mean that somehow something can happen that could cause a recession.
But for the most part when we’re in a pretty good business friendly environment business owners are just gonna have to keep a very close eye out on how things develop in the 2020 election year because depending on who takes over the White House who takes over Congress obviously a lot of rules can be changed a lot of laws can happen. Health care tax related things that will impede potentially our cash flow which may be for the good or the bad. There’s just nothing specific that’s going to impact our invoicing issues this year. I actually think this year will be a fairly decent year 2019 for the typical small business.
Reliant Funding: Is there anything on health care that you think we should make sure we’re talking to people about?
Gene: I’m you know I’m going to give you three quick things that I think if you’re a business owner you should be aware of and I don’t care if you’ve got less than 50 employees I know the government doesn’t require to have health care. But you know I mean come on we don’t work we’re competing for employees. So everybody you know having a health care plan is very important for companies of any size.
So there were three things. Number one health savings accounts are hot they’ve been hot the past couple of years they will continue to be hot. If you’re a business owner and you’ve got you know your high deductible plan which a lot of business owners and start a health savings account they’re very inexpensive you can put money away for yourself and your employees your employees can put money away pre-tax. They can use it to pay for those out-of-pocket expenses. It helps them a lot and whatever they don’t spend it rolls over to the next year. So talk to your benefits people about a health care savings account that’s number one.
Number two consider some type of a hybrid plan in 2019 or 2020. What I mean by that is rather than just paying a group insurance premium that covers all of your employees consider self-insuring a little bit on the lower level if you were to pay just the first three or four hundred dollars in out-of-pocket expenses for your employees and then having a group insurance plan kick in. You could significantly save on your health insurance costs because right now you’re paying group insurance premiums for everybody in your company.
And I bet you not everybody in your company is even using the health insurance. So why are you paying for it. So talk to your benefits administrator about a hybrid plan where you can do a little self-insuring and then letting the group insurance plan kicks in. So that’s number two and number three check out association health plans. It depends on the state that you’re in depends on sort of the political environment there. But you can form your own association if you want it can be a like-minded businesses in the same industry as you or I can be with an industry association.