What Is Purchase Order Financing?

what is purchase order financing

It isn’t uncommon for owners of small companies to ask What is purchase order financing? when looking for ways to gain some quick capital for mission critical operations. The thing is, however, that purchase order (PO) financing is something that might be ideal for a certain type of business in a certain type of situation, but it may not be something that works out in other scenarios.

In this post, we’ll explore PO financing and see just what you can use it for. Afterwards, you’ll have another bit of financial knowledge that will benefit you as an up-and-coming entrepreneur and will be that much closer to running your business with the best of them.

So, what is purchase order financing?

It’s a Way to Make Purchases Without Depleting Cash Reserves

As a small or medium sized business, you have to make sure that every dollar is spent wisely, right? That means that you need to be absolutely sure that you’re getting the best possible deal on supplies, equipment, and services that you need to run your business.

During the early years of a business, margins can be thin, so you can’t afford to let any of your resources go to waste. Still, cutting back isn’t an option. If you scale back on what you need to serve your customers, your reputation could suffer, people might turn to competitors, and you could lose market share quickly. That’s where PO financing comes in.

Whether your situation has your company seeing a lack of revenue as you attempt to turn your company around, or you’re saving your reserves for potential growth and expansion, you can use PO financing in order to continue operations.

When asking the question of “what is purchase order financing”, it’s important to think about how such a tool works as well.

In many ways, it acts as a form of cash. You can use a purchase order to pay creditors tomorrow for something that you’ll receive today, so to speak.

What happens is that you go through a PO financing company. That company then buys from your suppliers on your behalf.

The suppliers then fulfill their end of the agreement that your business has with them and the end product is delivered to your clients.

After the transaction is complete, the money from the letter of credit that the PO financing company drafted is released to the supplier and you typically have 30 to 60 days to pay an invoice to the PO financing company.

When to Use PO Financing

The question of “What is purchase order financing” goes hand-in-hand with when it should be used.

One such ideal situation for using this financial tool to further your business would be if one of your customers came to you with a large order that could potentially mean big things for your company.

While this is the break that you have been waiting for, the reality of the situation may be that you don’t have the capital or resources on hand that you need to make the order happen.

Bank loans may be out of the question as well, even if you have strong relations with your lenders.

When that happens, PO financing is your best bet for making that large order a reality so that you can deliver your product to your customers and grow as a company.

More About PO Financing: Who Uses Them

While many entrepreneurs may ask “what is purchase order financing”, they may fail to realize that the nature of this type of financial agreement limits exactly what kind of entrepreneur can use it.

These are the types of businesses that should typically be asking “What is purchase order financing?”

  • Producers – If you make a product, then PO financing could be an easy way for you to secure a large amount of raw materials that you use as ingredients. 
  • Distributors – You may find yourself having to send out a larger volume of a product than you usually would. In that case, PO financing can help you reach that goal.
  • Wholesalers – If you need to fill a larger than usual order with an existing customer, or are expanding to clients who purchase more than you normally supply, a PO financing may help cover the difference here. 
  • Resellers – Business owners in this industry who ask themselves “what is purchase order financing” can benefit from having more of a product to sell to customers by using PO financing.  

If you’re a business owner who wants to fulfill larger obligations to clients, but you aren’t asking yourself “what is purchase order financing”, then you should be.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.  Follow us on Twitter @portalcfo

How to Reduce Operating Expenses in Business

Cut costs

You can never have low enough overhead. Many entrepreneurs are always trying to figure out how to reduce operating expenses in business.

Let’s take a look at why you should reduce operating expenses in your business and what doing so can ultimately mean for a business owner like you.

1. Why Do You Want to Reduce Overhead?

With economic times being as unpredictable as they are, there are a number of reasons why you might want to keep your overhead as low as you possibly can.

Do any of these scenarios sound familiar?

  • Customer demand for your goods or services isn’t what it used to be – It could be that what you provide is seen as something of a luxury that people feel as though they can’t afford to use at the moment. Or perhaps there has been a perceived decline in your product’s quality.

Regardless of the reason, people aren’t buying in the amounts that they once did. This could lead you to trying to figure out how to reduce operating expenses in business, among other things.

  • Revenue is down across the board – This could be tied to the decreased demand or could be influenced by other factors like you being unfamiliar with what your competitors are doing.

Either way, decreased revenue could have you scrambling to figure out how to keep your head above water long enough to work out a way to get a strong cash flow going again.

  • Revenue isn’t being used efficiently – Do you often find your business is spending money in areas where it doesn’t need to be?

Wasteful spending is every bit as much a hindrance to growth in business finance as it is in personal finance, so it makes sense that you want to look at ways to keep that sort of a spending to an absolute minimum or simply eliminate it outright.

2. What You Need to Know Beforehand

What many business owners don’t realize in figuring out how to reduce operating expenses in business is that doing so can often carries risks. This makes the process of lowering your overhead more trouble than it’s worth and could potentially leave you worse off in the long run than you were when you first started.

Before you think about ways to reduce your company’s operating expenses, there are several worthwhile questions that you have to ask yourself.

Namely:

  • How will my customers be affected? – Everything that you do should ultimately benefit your customers in some way.  If the actions that you take in reducing your company’s operating costs could conceivably alienate the people to whom you provide your services, then your plans will definitely need to be reevaluated.
  • Will the quality of my products suffer? – Offering product that is inferior to what you used to provide cancels out anything that you achieved through reducing your overhead. If they don’t notice right away, your customers will notice the decline in time and take their business elsewhere.

You want to make sure that your offerings remain the same so that you can keep your customers happy.

  • Will it put me at a disadvantage? – You always want to be able to keep up with your competitors, so your strategy on how to reduce operating expenses in business should never undermine your competitive edge.

If lower overhead means fewer offerings, a reduced service area, fewer business hours or anything else that competitors could take advantage of, then you need to rework your business plan to lower your expenses without having to resort to any of those potentially harmful measures.

3. What You Can Do

Knowing what you do about how your business can be negatively affected by lowering your overhead, keep in mind that there are still several ways to go about continuing your business while remaining profitable.

The question of how to reduce operating expenses in business without being detrimental can be answered in some of the following ways:

  • Look at your employees – It makes sense that most consumers hold good customer service above anything else when considering where they will spend their money. That’s why you want to look at your employees as a way of reducing business costs.

How is that done, exactly?

Train your employees and keep them happy!

By providing a high level of training, your employees will know how to deal with certain situations and will be able to meet the needs of your customers.

Show your employees how important they are to the company’s mission and you’ll keep turnover, which can lead to high costs for your business, low.

  • Consider outsourcing some business functions – Every business relies on important services like information technology (IT) for communication purposes, and accounting for bookkeeping purposes.

In figuring out how to reduce operating expenses in business, one thing you could look at is outsourcing these important functions to professionals who specialize in these areas.

With respect to IT, outsourcing can save you money be lifting the burden of having to maintain, install, and update equipment and software, as well as having to devote time and resources to dealing with troubleshooting.

With respect to accounting, having a consultant carry out your company’s financial oversight will allow you to take advantage of expert bookkeeping that will be able to oversee financial record keeping much more efficiently than you might be able to were you to take care of it yourself.

Outsourcing both IT and accounting are textbook examples of how to reduce operating expenses in business because they allow you to get business critical services while avoiding payroll expenses and other taxes you would incur if you had these professionals as part of your regular staff.

  • Look at your production costs – How much is it costing you to provide your services to your customers?

You want to look at the materials that go into what you provide, as well as your relationship with the suppliers who provide you with those raw materials.

Are there alternatives that you can use in your production without affecting the quality? Do you have a strong enough relationship with your suppliers that you would be able to renegotiate the terms of your contract?

Many times, figuring out how to reduce operating expenses in business can be as simple as forming and maintaining strong business to business relationships with other companies.

Other times, it’s a matter of finding alternative ways to do something that you’re already doing.

  • Conserve energy – This may seem like a very basic premise, but take a look at how much good reducing your energy bill can do and you’ll see why it’s such a good idea.

By taking small steps like turning off devices when they aren’t in use, using lower wattage light bulbs, and generally conserving whenever the opportunity presents itself, you can see a dramatic reduction in one of your recurring bills.

These are just a few of the measures that you can take to keeping your company’s operating costs low. You just have to remember that when it comes to figuring out how to reduce operating expenses in business, you want to look for examples that might be unique to your industry on top of the examples illustrated here.

Keeping your overhead low without sacrificing quality of service or withdrawing the affections of long time customers will go a long way towards helping your bottom line.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

Check out our website at www.portalcfo.com for more tips on how to grow your business profitably.

You may also be interested in Learning How to Reduce Operational Risk.

International Business Growth Strategies

As an entrepreneur, you’ve probably considered establishing a business in an overseas market and, as a result, have wondered what some viable international business growth strategies are.

It’s no secret that, figuratively speaking, the world is getting smaller.

As communications technology continues to improve, developing nations undergo the transformation necessary to come into their own on the world stage. The opportunity for entrepreneurs like you to tap into these markets is there if you know what to do.

You should know that international markets are different from their domestic counterparts by their very natures for a number of different reasons.

There are advantages as well as disadvantages associated with these differences and it pays to know about them before you commit resources from your business to establishing a presence in a foreign market.

Let’s take a look at some of the unique aspects related to doing business internationally and you’ll get a good idea for what you can do to make sure that your company is successful in its overseas endeavors.

  • The stability of the country – This mainly applies to countries that are still developing. It isn’t uncommon for these countries to experience political instability that could threaten your ability to conduct business within its borders. When coming up with a plan, you want to do thorough research on the country that you intend to carry out operations in and make sure that the risk of doing so is low enough that you’ll be able to conduct business there successfully.
  • The local laws related to doing business – Before you started your company in the US, you knew all of the laws related to doing so, right?

It makes sense then, that part of your international business growth strategies would involved being well-versed on the laws of the country that you intend to do business in.

From reporting standards, to hours that employees work, to what you are and aren’t allowed to sell, the standards are likely going to be different from what you’re used to. Even if the difference is trivial, it’s worth knowing about so that your company works within the law.

  • Currency rates – This should be a huge factor in your international business growth strategies, regardless of what your industry is.

You need to keep an eye on currency rates because no two currencies are exactly alike and that’s an important thing to keep in mind when dealing with international customers.

By keeping these things in mind, you’ll be well on your way to establishing a successful business on foreign soil. After you consider these factors, several truths that go with business success in the US can apply, at least to some degree, to foreign markets.

  • Make sure that your processes are as efficient as possible – When meeting the demands of your customers, your service should be as quick and efficient there as it would be here in the US.

Take the time to establish relationships with suppliers and vendors to make sure that your products will also get into the hands of your customers as quickly as possible and you will easily establish a reputation as a company that puts people first.

This can easily apply to the concept of customer service as well. You want to settle any disputes that might arise quickly and fairly. Turn a situation around and win a customer back after something has gone wrong and you will have no problem with establishing trust with other people who want to use your company’s services.

  • Be versatile – No matter where you are in the world, the simple fact that everyone has different needs applies. This is something you need to consider when devising international business growth strategies.

Do some market research to find out what people in the country that you are targeting want. Your company may be able to meet the needs of several demographics in the area. If it can’t, you may be able to develop a product or service that can.

By looking into who you are serving and what they need, you may very well find an untapped niche that be cornered early. Your company’s name could then become synonymous with a particular offering as a result.

  • Establish partnerships – In order for your business plan to be viable, your international business growth strategies should involve a partnership with someone who already has a strong presence in the country where you’ll be working.

Try to find a business whose offerings can be supplemented by your own, as you want to establish a bond that can be mutually beneficial without the eventuality of a competition emerging between your business and your partner’s.

Once you work with a household name long enough, your product can eventually branch off on its own and you’ll already have loyal customers who can fuel your continued success in your new market.

When it comes to international business growth strategies and making a name for yourself in other countries, the endeavor can be a mixed bag of familiarity and uncertainty.

Wherever you decide to go in order to expand your business, you want to be sure that the venture is something that is viable and, beyond that, you want to take into account things like local customs, potential language barriers, and taxes before you fully commit.

If you gain a firm grasp on these things before you establish your business and include them as part of your international business growth strategies during the time that you conduct and expand your enterprise, then there’s no telling how far you’ll be able to go.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.  Follow us on Twitter @portalcfo

Sign up for our weekly blog email update to stay tuned for details on our upcoming teleseminar for maximizing profits in your business.

How to Reduce Business Debt

how to reduce business debt for service business owners

Once you’ve got your business up and running profitably, you probably want to know all about how to reduce business debt, right?

Depending on the kind of debt that it is, it could be eating into your cash flow and keeping you from expanding the way that you want to. It makes perfect sense that you want to get rid of any business debt you accumulate as quickly as possible.  Keep in mind that in some cases, there is debt that is “good” for your business.  We will discuss “good” business debt in a future post.

In many cases debt is inevitable, especially during the earliest phases of a company’s development.

Fortunately, that debt doesn’t have be something that constantly hangs over your head and keeps your enterprise from being the best that it can be.

Let’s take a look at some of the different strategies that you can employ to reduce your company’s debt.  You’ll see how you can gain peace of mind through business debt reduction.

  • Work with your suppliers – In figuring out how to reduce business debt, one of the first places that you should look should be the suppliers from whom you buy raw materials

If you happen to be behind on supplier payments, you want to work out a payment plan with your suppliers that will help you to get current with them.

Your company most likely depends on what your suppliers sell you, so you want to settle any outstanding debts with them first and foremost.

Doing so will make sure that your relationship stays strong and that you continue receiving the items you need to provide your own goods and services.

  • Sell, sell, sell – In order to reduce debt, you need to increase revenue. That much is obvious. There are several ways to go about doing that; the most straightforward of which is to increase your sales volume and move more product and services than you have in the past.

Offer incentives to your customers to get them to buy more, as long as its viable for you to do so. As you manage to sell more products, you can use the additional revenue to reduce your company’s debt.

  • Restructure – When many business owners try to figure out how to reduce business debt, one thing they often fail to consider is how much restructuring might help them reduce debt.

From selling surplus inventory and unused equipment, to cutting back on excess around the business, there are a several small, but significant things that you can do to get closer to your goal of eliminating your company’s debt.

  • Reduce Your Operating Expenses – This could fall in line with restructuring, or be its own strategy entirely.

Think about the things that always cost your money around your business.

You have your utilities like electricity and water, as well as services like your internet connection. Furthermore, you have the office itself, which you most likely pay to rent.

While it’s true that these things are the cost of business, it doesn’t mean that there aren’t ways to reduce them.

If it’s realistic for you to do so, consider moving to a smaller office or switching service providers for more cost-effective solutions. The money that you save could be reallocated to tackling your debt.

Likewise, you could consider alternative scheduling for your employees. If you encourage them to spend time working from home on their own schedules for part of the time, you can ease a transition to a different office.  Likewise, you may not need to purchase, power, support, and maintain as much equipment around your office.

  • Look over your taxes – Speak with your accountant, CFO, or any other financial expert that you employ and they can help you figure out how to reduce business debt.

One way that they might do this is by going over what you pay in taxes and making sure that you are counting all of your eligible deductions throughout the year.

It pays to do this often because tax laws are always changing and new ways for businesses to take advantage of tax breaks are always popping up.

You want to make sure that your annual tax bill is always at its lowest possible number, so that any money left over after you pay the IRS can go towards reducing your company’s business debt.

Keeping your debt under control is one of the most important things that you can do as a business owner, so you want to make sure that you’re taking every step that you can to pay back creditors and keep outstanding balances from impacting your company’s bottom line.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more ideas on how to grow your business, please check out our website at www.portalcfo.com.

Small Business Budgeting Strategies: Making Your Money Work for You

Small Business Budgeting for your service business
4 small business budgeting strategies

With everything that you pour into your business, the last thing you want to see happen is for it to face some kind of trouble or, even worse, failure due to financial mismanagement.When it comes to your business, you already know everything that there is to know about the product and service that you offer, right?

No matter what kind of question a business partner, customer, supplier, or lender has about what your company does and how it can improve lives, you’ll be able to answer their questions without a second thought.

Some of those same people who ask you questions about what it is that your company does may have questions about your company’s finances and expenditures too.

With the right budget and careful financial oversight applied to your business practices, you’ll not only be able to answer those questions, but you’ll be painting a clear roadmap for where you want to be and how you’ll eventually get there.

Let’s take a look at 4 Small Business Budgeting Strategies and you’ll see how crucial a component it is to your company’s overall success.

1. Look at Your Fixed Expenses

The first expenses you should take a look at as part of your small business budgeting strategies are those that occur every month without fail and stay roughly the same each billing cycle.

Think about common operating expenses like the rent for your office space, your payroll, and the taxes that you pay.

These should be among the first things that you include in your budget, because you know you’ll always have to pay costs associated with them. After including them, you can work other expenses into your budget as part of your small business budgeting strategies. They can be shaped around your fixed expenses so that there are fewer potential surprises.

Assuming that these costs remain fairly constant, you can plan for them several months at a time so that you’ll know what you pay immediately as well as what you’ll be paying for them in the long term.

2. Pick Out Costs That Can Dramatically Change From Month to Month

As part of your small business budgeting strategies, you also need to be aware of the costs that can change depending on factors like how much business you do.

Look at:

  • Your inventory
  • How many deliveries you’ll have to take on every month
  • The cost of the materials you need to provide your products or services
  • Similar things of that nature

You don’t have as much control over these as you do your fixed costs and you should plan your company’s budget around that fact accordingly. But here are some ways to reduce operating expenses in your business.

If a product or service that you offer corresponds with a particular time of the year more so than it does with others, then you’ll see an uptick in customers during that time. With that being the case, you need to consider inevitabilities like increasing employee payroll to make sure you have enough coverage, taking on extra deliveries to make sure supply meets demand, and the possibility of extending the hours of your service.

Conversely, your business could be in an industry that experiences regular “slow” periods, such as construction in the winter months. When that happens, costs associated with running your business may be dramatically lower every month.

These are just some of the considerations that you have to keep in mind, and they certainly don’t apply to every business owner, but showing some flexibility in your small business budgeting strategies will guarantee that you’ll be prepared for sudden shifts in activity that could affect your company one way or the other.

3. Examine Time Tested Patterns and Trends

Research is an essential part of business planning and things are no different when it comes to figuring out a budget.

One thing you may want to do is take a look at information like what other businesses in your area have experienced as far as traffic from customers and money coming in are concerned.

You can use past precedents to guide your actions in setting up your own small business budgeting strategies and further refine your expectations by considering where your company is located.  You can also consider the times that you operate compared to your competitors.

Using these methods, you’ll be able to estimate what you’ll see in revenue and plan subsequent actions related to your business accordingly.

4. It Pays to Stay On Top of Your Budget

Once you’ve come up with a viable strategy that can put the minds of investors and business partners at ease, you want to make sure that your company’s operations follow that roadmap closely enough that you’ll see the kind of success that was laid out in the pages of your business plan.

When you come up with good small business budgeting strategies, keep a close eye on the developments that follow the plan being put into place.

Over time, you may experience instances where the costs that you worked into your business plan may not be ideal for the situation at hand. When that proves to be the case, you can make several adjustments to better suit the circumstances:

  • Review your practices – With a small business, you can hardly afford to waste anything. If you find that money is being spent needlessly, then a review of your budget will allow you to make the adjustments necessary to guarantee that every dollar is put to work.

Conversely, you may find out that you have a surplus that could be put to use in some area of the business that needs additional attention.

Make it a habit to review your budget every few months. With the pace at which the world of business moves, you may need to make periodic changes to ensure that you’ll always come out ahead.

  • Keep business relationships strong – When running your company, the relationship that you share with other businesses can have a much larger influence on your small business budgeting strategies than you might think.

Whether we’re talking about suppliers who provide you with raw materials, or banks that extend loans to your company, you want to make sure that the terms you share with these entities are the best that they can be.

Doing so will ensure that you always have someone that you can rely on to deliver an important part of what keeps your company going.

  • Look at ways to lower costs – This can be done in a number of ways. If you want some additional breathing room then you can look at things like your office space and the equipment that you use. Read 3 tips for growing your business on a budget for more helpful info.

Can you find a space that’s just as good for a small amount of money? Is there any cheaper equipment out there that can do the job just as well as what you currently have?

Besides answering these simple questions, you shouldn’t be afraid to shop around for the suppliers who provide you with the raw materials that you need. Doing so could save enough revenue over the long term that you can redirect the money to more productive purposes.

When it comes down to it, your company needs budgeting in order to forecast its revenue streams and plan the appropriate steps to positive growth and longevity in your sector.

Regardless of what your company does, it helps to know where you’re going and how you’re going to get there. With these small business budgeting strategies, you can shape the kind of business plan that has helped countless companies like yours see success and become leaders in their fields.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, check out our website at www.portalcfo.com.

Small Business Growth Strategies: Tips to Help Your Company Grow and Become Profitable

When it comes to your company, there are several different small business growth strategies that you can employ in order to make sure that your company thrives and your profits grow up.

Whether your venture is in food service, information technology, transportation, or any of the other countless sectors where entrepreneurs strive to establish themselves, there are always things that you can do to make your situation improve.

From establishing your own unique niche to making sure that your customers know that you’re offering is better than anything else offered in the same market, there are countless things that you can do to make sure that your company expands and enjoys a lucrative a future.

Let’s take a look at some small business growth strategies that other entrepreneurs have used. You may be able to adopt some of these for yourself or draw inspiration for your own ideas on how to make your company expand.

Common Growth Strategies for Small Businesses

  • Finding a Niche – Does your target demographic have a certain need that you and your competitors are failing to meet? By doing market research among the chief audience that you want to sell to, you can find out if they’re getting everything they want from businesses like yours.

If you manage to corner a section of a market early enough, your name can become one of few (or, in some cases, the only one) associated with that product or service. This method takes a lot of work, but the reward for finding an untapped segment of the market and providing for it far outweighs the work that goes in to finding it.

  • Network, Network, Network – Whether you do so at a conference, an industry trade event, through professional associations, speeches, or dedicated networking events, you’ll never know who you’ll meet. Small business growth strategies that involve networking are good because you can meet people who have interests similar to yours and chat with them about what you do.

Who knows what kind of relationships networking could lead to? You might meet potential business partners, employees, suppliers, and other people who could help your company thrive.

  • Develop Your Website – In this day and age when an increasing amount of business is conducted online, there’s no reason not to have a site for your business. That said, once you do have a site, you want to develop it so that it’s as attractive and easy to use as possible.

By supporting your company with an engaging site, you make it easier for customers to find you and buy from you. Not only that, but a well developed website will allow customers to find what they want quickly and easily. Being able to navigate a site with ease is essential to keeping a customer happy and turning them into a repeat buyer.

  • Advertise – This seems like a fairly obvious method as far as small business growth strategies go, but it never hurts to reiterate it.

Many times, the most successful means of getting the word out about your company can depend on what your target demographic is. Younger buyers may look to social media and the internet more while older consumers rely on television and print. Figure out who you want to advertise to and that should give you some idea about how to do it.

  • Diversify – When it comes to running your own business, variety can always help you in some way. Depend on your industry, the range of products and services that you provide could make your firm a one-stop shop for the needs of some customers. If your industry is one that is especially affected by the seasons of the year, then diversifying what you offer is definitely a great way to get your business to grow and become an industry leader.
  • Find New Uses For What You Offer – When it comes to being able to get things done, some people have to rely on being able to do more with less. If you can find a new use for something that you offer then your customers will reward your innovation with brand loyalty and recognition that makes your company’s name synonymous with the industry in which you operate.

These are just a few of the small business growth strategies that entrepreneurs have relied on to succeed and they can help you too.

Take the time to look over various strategies, figure out what works best for your company and formulate a strong business plan that maps out exactly where you want to go and how you plan to get there.  By doing that, your company will be on its way to positive growth in no time.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.  Follow us on Twitter @portalcfo

Sign up for our weekly blog email update to stay tuned for details on our upcoming teleseminar for maximizing profits in your business.