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Essentially, every business must be concerned with patents, copyrights, and trademarks. These are all types of asset protections, even though the assets might be intangible. Your business assets might include equipment, real estate, or cash reserves tucked away in a bank account, but you probably also own something else: intellectual property.

Intellectual property refers to things like inventions or designs for an invention, manuscripts, books, creative licenses, or logos. Patents, copyrights, and trademarks protect different types of intellectual property businesses can own. Understanding how each protection works will help you secure your intellectual property, which might be the most valuable asset your business possesses.

What is the difference between copyright and trademark? What is a patent? Copyrights, trademarks, and patents differ in what kind of intellectual property they each protect.

Copyright vs Trademark vs Patent

The United States government’s laws surrounding intellectual property can be hard to understand if you aren’t a lawyer. Each type of intellectual property involves different laws and requirements, so there are some basic concepts to understand before going forward with your patent, copyright, or trademark.  

A copyright protects original works, such as art, literature, or other created work.

A trademark protects names, short slogans, or logos.

A patent protects new inventions, processes, and compositions of matter (such as medicines). Importantly, ideas cannot be patented—your invention must be embodied in a process, machine, or object.

Trademark vs Copyright

The simplest way to understand the difference between a copyright and trademark is size.

A copyright is for entire works, like books, songs, software code, or photographs. Trademarks are for logos, phrases, or designs that identify your brand or business.

What’s a Patent?

A patent is a special license issued by the US Patent and Trademark Office (USPTO) that gives you the exclusive right to make, use, or sell an invention for a set period of time.

Patents aren’t all the same; there are 3 kinds to choose from based on your situation.  

Utility

These patents are good for 20 years and are used to protect machines, manufactured items, processes, methods, and compositions of matter.

Provisional

This is a short-term patent with a 12-month term that covers the same things as utility patents and allows you to fast-track market testing of your product or idea.

Design

Design patents have a 14-year term and cover the artistic or ornamental design elements of an item you manufacture for commercial use.

Remember, if your patent expires, that opens up the field for anyone else to copy and sell your invention. You’ll need to pay regular maintenance fees to keep your patent active. Once it expires, it can only be renewed by an act of Congress.

Copyrights Help Creatives

If your business involves creating original works, such as books, articles, songs, photographs, or artwork, a copyright legally identifies them as belonging to you.

But what exactly does a copyright protect against? Essentially, they’re a legal way to keep someone else from copying work you’ve created.

They don’t protect your ideas, however. If you develop an app based on an original concept, for example, and someone else has the same idea, there’s nothing to stop them from producing their own iteration of it.

Copyrights can be registered with the US Copyright Office. Once you register a copyright, it’s good for the rest of your life, plus an additional 70 years.

Trademarks Protect Brand Identity

A trademark is a word, phrase, design, or symbol that identifies and distinguishes your business’s products and/or services from another. Unlike patents, trademarks don’t expire and don’t have to be registered.

But registering a trademark with the USPTO gives you some advantages since it’s a public statement of your ownership claim to a particular mark. Once your trademark is registered, no one else can use it. If they do, you could sue them for trademark infringement.

Before registering a trademark, it’s a good idea to make sure no one else has laid claim to it. You can search for trademarks already in use here.

Can I Trademark a Phrase?

You can trademark a phrase, but many rules impact this process. You cannot trademark a phrase that is part of everyday speech common in business. The phrase must be distinctive, i.e. not generic or merely descriptive, especially in terms of your line of business. You cannot trademark a phrase just because you like it—you must show that you intend to use the phrase to sell goods or services.  

What Words Cannot be Trademarked?

Generally, trademarks are weak based on how generic and descriptive they are. If you own a bicycle rental store, you cannot trademark the word “bike.” You might be able to trademark a descriptive word if it isn’t directly connected to your business—Apple, the computer company, trademarked “apple,” but an apple orchard would not fare well with the USPTO with a similar application.

Furthermore, a trademark only protects you against competitors in the same line of business. The apple orchard mentioned above would probably not have to worry about a trademark lawsuit from Apple.

You cannot trademark vulgar, disparaging, immoral, deceptive, or scandalous words, as determined by the USPTO. Additionally, you cannot trademark proper names or likenesses without the permission of the person, and you cannot trademark anything involving US presidents or the U.S. government.

How Long Does a Trademark Last?

In the US, a trademark essentially lasts forever. If you register your trademark with the USPTO, you have to renew your registration every 10 years. If you let your registration lapse, your trademark is still protected under common law, but USPTO registration provides you with the highest standard of intellectual property protection.

Is It Better to Copyright or Trademark a Logo?

In most cases, you probably want to trademark a logo if you plan to use it connected to the sale of goods or services. If you think you would use your logo in some other way, like if you consider it a work of art in itself, you could apply for a copyright. 

UPDATE: The PPP loan application period ended May 31, 2021. Learn about financing options available for small businesses today at Lendio.com

FAQs About the Paycheck Protection Program (PPP)

As was the case with the initial round of PPP, details for the program weren’t fully ironed out until after the bill had passed. As a result, many small business owners were left scratching their heads as to how PPP works. We know how vital this financial lifeline is for many small business owners. Here are answers to some of the most common questions small businesses have asked us about PPP. You can also find primary details regarding the loan (like how to calculate your payroll costs and what the loan can be used for) on our PPP page. 

When will the PPP extension end?

We recommend you apply for PPP early to ensure that your application has enough time to move through processing by the lender and be submitted to the SBA prior to the May 31, 2021, deadline.

How much is available in the new round of PPP?

How large of a loan can a business qualify for through PPP?

The program also includes the following caps:

• Maximum total loan amount: $10 million (aggregate total for First and Second Draws)
• Maximum loan amount for a Second Draw: $2 million
• Maximum loan total for businesses within a corporate group: $20 million

What protections have been added to PPP?

• Restaurants, hotels, or live venues that fall under a NAICS code starting with "72" can apply for 3.5 times their monthly payroll costs on their Second Draw. 
• Live event and production companies that have been forced to close may be eligible for a special grant.
• $12 billion have been specifically earmarked for BIPOC-owned businesses.  

What Is Your NAICS Code Used For?

By having a unified system for companies to identify themselves, regulatory bodies and other organizations can protect business owners and ensure America has a balanced economy.

NAICS Codes and the Paycheck Protection Program (PPP)

Additionally, this code helps ensure that companies applying for specific loans (like those related to hospitality) fall firmly within the field. That way, a company with a code related to advertising that had hospitality clients wouldn’t take from an actual hotel or restaurant—as an example.

Keeping your NAICS code on hand before applying for PPP assistance can make the process go faster and help you apply with confidence.

What is needed to qualify for a First Draw on a PPP loan?

• Your business was operating as of February 15, 2020. 
• You own a small business with associated payroll costs, you run a nonprofit with associated payroll costs, or you’re a sole proprietor/freelancer.
• You certify that your business has sustained economic damage due to the COVID-19 pandemic. 
• You have 500 or fewer employees. 
• You’re an independent contractor, sole proprietor, self-employed individual, or a business partner (For limited partnerships, only one PPP application can be submitted per partnership.)
• You have employed for whom you paid salaries and payroll taxes. 

Will you be able to get another PPP loan if you received one during a previous round?

What will the requirements be for a Second Draw on a PPP loan?

• Your business has fewer than 300 employees. 
• You can show a 25% revenue reduction during the first, second, third, or fourth quarter of 2020 (relative to the same quarter in 2019). 

How much can you qualify for in a Second Draw?

The maximum loan amount for Second Draws is $2 million. The maximum aggregate total for First and Second Draws is $10 million (if you happened to receive $9 million in your first draw, you would only be able to receive $1 million in the second draw). The maximum that can be borrowed by businesses within a corporate group is $20 million. 

What additional businesses are now eligible for a PPP loan?

• News organizations
• Some hospitals owned by government entities
• Businesses that receive legal gaming revenue (if they meet applicable requirements)
• Electric, telephone, and housing cooperatives
• 501(c)(6) organizations and 501(c)(19) tax-exempt veterans organizations
• Tribal businesses
• Destination marketing organizations (if they meet applicable requirements)
• Certain faith-based organizations

Is Lendio a PPP lender?

If not a lender, what is Lendio’s role with PPP?

What is the lender’s role with PPP?

Does the lender actually underwrite each file?

How long does the SBA take to process the application once submitted by a lender?

What is a PLP Number?

Is there a difference between a PLP number and an SBA loan number?

Can a borrower be denied a PPP loan after being issued an SBA loan number?

Is it possible to cancel my SBA loan number with my lender?

Why am I being asked for a credit check?

How long will it take the lender to fund the loan?

If a lender is unable to issue funds due to a borrower-caused delay, like missing paperwork, the SBA allows 20 days for funds to be disbursed. If the lender still has not received the necessary information at the end of that 20-day period, the lender is required to cancel the loan.

Why was I denied? Do I need to resubmit somewhere else?

If your application is flagged by E-Tran due to one of these issues, it may still be possible to fix the issue. Once you fix the issue, you can reapply for the loan, and we’ll do our best to get you resubmitted through a different lender. Additionally, to increase your odds of approval and funding, we recommend you apply at as many places as possible. 

Another common reason for denial is that there is already an SBA loan number under that Taxpayer Identification Number (TIN), which often happens when a business owner who owns multiple businesses applies for a loan. 

How will the SBA review borrowers’ required good-faith certification concerning the necessity of their loan requests?

Borrowers with loans greater than $2 million may still have made the certification in good faith. All loans greater than $2 million, and other loans as appropriate, will be subject to SBA review. Borrowers that did not have a basis to make the certification (concerning the necessity of the PPP loan request) will have to repay outstanding PPP loan balances and will not be eligible for loan forgiveness.

If the borrower repays the loan, the SBA will not pursue administrative enforcement. Any borrower that repaid a PPP loan in full by May 18, 2020, will be deemed by the SBA to have made the required certification concerning the necessity of the loan request in good faith.

Are employees of foreign affiliates included for purposes of determining whether a PPP borrower has more than 500 employees?

According to the interim final rule, borrowers must count non-US employees toward the 500 limit, but these employees are excluded for average payroll and loan calculations.

Are PPP loans taxable?

Initially, there was uncertainty as to whether a business or nonprofit could deduct expenses paid for with PPP loan funds. The Economic Aid Act has clarified that these expenses are now tax-deductible. More guidance from the IRS is needed on just how this process will work. 

However, some states are currently taxing these funds, so you should check with your local accountant about how your state is handling this issue.

For more details on how to approach your taxes and potential deductions in relation to PPP, you can consult our post, “Are Business Expenses Paid With PPP Loans Deductible?”

How long does PPP last?

How long will the Paycheck Protection Program last?

Will there be another PPP loan round?

If you’re considering applying for a PPP loan, we strongly encourage you to do so sooner rather than later. There is no guarantee that funds will remain available through May 31, 2021, or that there will be another round of PPP loans.

Apply for your PPP loan now through Lendio's online application.

Lendio strives to provide you with the most current information as it relates to the Paycheck Protection Program, related SBA programs, and relevant regulations. The rules and regulations governing these programs are being regularly clarified by the SBA, and other agencies. In some cases, the provided guidance may directly conflict with other competing guidance, laws, rules, or regulations. Due to these changes, Lendio cannot guarantee that the information contained in this page reflects new changes or updates.

Lendio advises you to review the SBA guidelines and regulations on your own and determine your Company’s best approach to receiving SBA loans. Lendio urges you to consult your own attorneys, lawyers, and consultants to make the best decision possible. The information contained herein should not be construed as legal or tax advice, and should not be relied upon as such.

Your storefront says a lot about your business. When choosing real estate or new construction for your next office or store, you’ll want to know more than just location and layout. More and more, small business owners plan on renting or purchasing historic buildings—generally designated by a specific town or state—which requires considering a few extra elements.

The National Historic Preservation Act (1966) designated more than 90,000 spaces across the United States as “historic,” whether in art, architecture, engineering, or culture. This list includes everything from famous landmarks like the Washington Monument to civic buildings like the White House and iconic structures like the Empire State Building.

While the historic buildings you’re likely to encounter as a small business owner may not be as flashy, they matter to the fabric of the town—whether it’s an old general store, important hotel, or colonial home. 

Why Choose an Old Building?

But that push for “more” isn’t exactly environmentally friendly. The EPA reports that construction generated 600 million tons of debris in the United States in 2018, including steel, wood products, drywall and plaster, brick and clay tile, asphalt shingles, concrete, and asphalt concrete.

Not only is it more sustainable to use what’s already available, the adage that “they don’t make them like that anymore” rings true with modern construction. “Whereas a century ago, it was reasonable to expect new buildings to span multiple generations, today, disposable architecture is the new normal,” said urban designer Jenny Bevan in a 2015 Tedx Talk. “We are squandering one of the few opportunities we have to connect generations and provide the community a sense of connection.”

Root Your Business in a Place

Starbucks began as a tiny outpost in Seattle’s (historic!) Pike Place Market. Since then, they’ve expanded to street corners everywhere. But in recent years, they’ve put a focus on historic buildings as sites for new stores rather than building something new, matching the facade and interior decor to the place. Starbucks opened in an art nouveau building in Damrak, Netherlands, in one of the oldest buildings on Michigan Avenue in Chicago, and in an elegant historic building in Milan, Italy, in the last few years.

“We have spent the past year living and breathing the city of Milan, working closely with dozens of local artisans to bring to life our most beautiful retail experience that engages each one of our customers’ senses—sight, sound, touch, smell, and of course, taste,” said Liz Muller, Starbucks’ chief design officer, in a press release when the store opened. “From the palladiana flooring that was chiseled by hand to the bright green clackerboard made by Italian craftsman Solari, everything you see in the Roastery is intentional, offering moments of discovery and transparency.”

Historic buildings offer small business owners the chance to be a part of something bigger. “American cities are filled with hearty and proud structures from the 19th and early 20th centuries, handsome buildings of brick and iron, timber and stone,” writes SCAD President Paula Wallace for Entrepreneur. “The great revolution in heritage conservation and adaptive reuse has only just begun.”

How to Approach Your Historic Building

• Preservation maintains and repairs an existing property
• Rehabilitation retains the property’s original character but adds or adapts it to modern times (for example, adding wheelchair-accessible ramps)
• Restoration brings a historic building back to a specific time period in its history
• Reconstruction attempts to recreate what the building would have looked like, particularly in damaged or removed areas

No matter where you are in the US, you’ll need to dig through several layers for any permitting process. First, check whether a building is federally-funded, which would mean the Advisory Council of Historic Preservation would need to weigh in on your proposed plan. 

Then, check state guidelines on the National Park Service website, as each one differs. In Massachusetts, home to almost 200 historic landmarks, from Thoreau’s Walden Pond to Plymouth Rock, you’ll need to go through the Massachusetts Historical Commission. 

Finally, contact the local historical society. While there may not be specific ordinances to comply with, if you choose to restore or reconstruct, they may be of assistance in finding older photographs of the exterior and determining period-appropriate building materials.

Sometimes Innovation Means Going Backward

As you look to use historic buildings in your business, consider the broader community implications.“Being an effective preservationist means understanding that our efforts to save buildings are woven into a complex tapestry of other important social needs, including—but not limited to—affordable housing, economic and social equity, economic development, and climate change,” writes Patrice Frey of the National Main Street Center for Bloomberg’s CityLab. “Let’s consider new opportunities for impact, confront uncomfortable truths about where we may be falling short, and be vigilant in our efforts to find and embrace creative new tools for preservation.”

An invoice is a document sent from a business to a customer indicating products sold or services executed (or agreed upon). 

The document will often include client and business information such as logos, addresses, and contact details in addition to transactional information like the type of products or services, quantities, and scope. The invoice is essentially a bill, and it will often include payment terms, timelines, and other information.

Keep reading to learn more about how to pay an invoice.

Receiving Invoices From Businesses

Every business handles invoicing differently. Some utilize invoicing software to streamline the management and tracking of paid and outstanding invoices, while others prefer creating and mailing an invoice by hand. Some businesses invoice with strict payment terms, while others provide more flexible timelines and payment options.

Simply put, you can receive many different types of invoices through various methods. While the invoice itself may be unique, there are only 2 channels to receive an invoice.

• Online: More recently, businesses are choosing to move their invoicing online for simplicity and cost savings. The most common way to receive an online invoice is via email. However, you’ll likely be directed to an online portal to pay that invoice. Many of these client portals will allow you to review and manage outstanding and paid invoices
• Offline: While online invoicing solutions are becoming more and more popular, some small businesses still prefer tangible invoices. You may receive invoices from local businesses by mail or in-person after a project is completed.

When Should You Pay an Invoice?

Paying bills on time is an important step in maintaining good relationships with businesses and vendors. If you’re frequently late on payments, the business may decide to charge you more—or to drop you entirely. If you operate in the business-to-business (B2B) space, losing a good vendor can cause bottlenecks and quality control issues throughout your business. So always pay your invoices on time.

Payment terms are often discussed before work is started and will often be outlined within the invoice. For many industries—especially B2B—it’s possible to have payment timeframes that extend weeks or even months after the work is completed or products delivered. You may also be able to negotiate discounts for up-front or early payments if the business struggles with cash flow or delinquent payments.

Most invoices will include phrasing like “payment date” or “net-payment terms” that indicates the deadline for paying an invoice. Net-payment terms are often used to express a timeframe or window to pay an invoice within. For example, if you have an invoice with net-15 terms, it means you have 15 days from the time you received that invoice to pay the balance.

If you received an invoice with no payment terms outlined, the typical timeframe of 30 days should be assumed.

How to Pay an Invoice Online

The physical process for paying an invoice online will vary based on the invoicing or payment processing software the business uses. Typically, it will flow like this:

1. Open the email with the outstanding invoice.
2. Look for a button that directs you to “Review and Pay Invoice.”
3. Confirm that all the information is accurate.
4. Find the button or area on the page that directs you to pay.
5. Input your credit card information or complete other payment method requirements.
6. Confirm that the payment amount matches the invoice and what you agreed upon.
7. Submit the payment and receive the receipt.

Paying invoices online is usually a seamless process. Best of all, most businesses allow for flexible payment methods. Some of the common ways to pay an invoice online include:

• Credit card payment: The most common way to pay an invoice online is by credit card. While most businesses will allow any type of credit card, you’ll want to confirm beforehand—some businesses do not accept credit cards like American Express or Discover because of their increased fees to companies.
• Bank transfer (ACH): Another popular method for paying an invoice online is to pull it directly from your bank account via ACH. If you can afford to pay with ACH, you can often use this fact to negotiate lower rates with businesses. ACH payments can save a business money on transaction fees, which can be quite expensive—especially on large invoices.
• PayPal payments: PayPal is another common way to pay invoices online and simply involves signing into your PayPal account within the payment processing step. To pay an invoice with PayPal, you’ll need to have an active and funded PayPal account or have it connected to your bank account.

How to Pay an Invoice Offline

If you received an invoice and are looking to pay it without using an online option, then you’re limited to a few methods. While not the most convenient, safe, or fastest way to pay invoices, offline payments usually include:

• Paying in person: You can often pay invoices in person—with COVID-19 restrictions, you’ll want to confirm this first. Typically, you can use a credit card, check, or debit card to pay a bill directly at the business.

• Paying over the phone: Many businesses will also accept payments over the phone, but this is not the most secure way to pay an invoice. The business will collect your credit card information over the phone and pay the bill manually.
• Paying by mail: You may also be able to write a check and pay your invoice through the mail. Again, this is not the safest or fastest way to pay a bill—and the customer may experience delays, which could cause your payment to arrive after the due date.

The establishment of a minimum wage first occurred in 1938 with the passing of the Fair Labor Standards Act. This act ensured that employees should be paid a minimum amount for the labor they perform and was passed to prevent employers from paying their workers next to nothing for long hours in often dangerous working conditions. 

While the minimum wage has been in effect for more than 80 years, it has recently become a controversial political issue. Some argue that it should be raised to keep workers out of poverty while others assert that it needs to remain the same—or be revoked entirely. Learn more about the minimum wage and whether it actually is a living wage.

Was minimum wage ever meant to be a living wage?

From the beginning, the minimum wage was meant to be a living wage—meaning families could live off of the pay comfortably, rather than struggling paycheck-to-paycheck. 

President Franklin Delano Roosevelt was a major proponent of the living wage, saying that “by living wages, I mean more than a bare subsistence level. I mean the wages of a decent living." With this idea, a family that earned minimum wage could not only cover the costs of food and shelter but also save for emergencies and have the funds to thrive rather than just get by.

Since the enactment of the federal minimum wage, the pay rate has increased 22 times by 12 different presidents. However, it hasn’t been raised since July 2009, when it was increased to $7.25 per hour.

Arguably, the current minimum wage is not a living wage but a poverty wage. A full-time employee who works 40 hours per week for 52 weeks per year would earn just $15,080. Meanwhile, the Census Bureau places the poverty line for 1 person under the age of 65 at $13,465. 

If that full-time employee has a single dependent, like a child, then the poverty line is $17,839. A US family cannot live under the wages of 1 person—or even 2 people—who only earn the minimum wage.  

While states can set their own minimum wage and increase them based on the state’s cost of living and other policies, most simply accept the $7.25 federal level as the bare minimum.   

Can the minimum wage keep up with the cost of living?

The main reason minimum wage workers fall below the poverty line: their income isn’t keeping up with the cost of living. For example, the median price to rent an unfurnished apartment in 2009 was $1,064 per month. In 2018, due to inflation, the cost was $1,588. 

This means that rent alone would cost a minimum wage earner $12,768 in 2009, and someone who made the minimum wage of $7.25 per hour in 2018 would have to pay $6,288 more than their 2009 counterpart ($19,056). 

Furthermore, rent isn’t the only expense that increased in the past decade—car prices, healthcare, education, food, gas, and other expenses have all increased while wages have remained stagnant. Each year, a full-time minimum wage earner has less and less buying power and a harder time caring for themselves and their families as a result. 

The minimum wage vs. cost of living tension grows even stronger in urban areas where the cost of living tends to be much higher. In San Francisco, many waiters can’t afford the cost of living, so they either commute in and out of the city—difficult when you’re working a late shift—or sleep in their cars overnight. Even with California’s minimum wage set at $12 per hour, it is nearly impossible to get by in most of the city’s downtown neighborhoods. 

Is $15 an hour a livable wage?

At present, $15 is considered the new level for a minimum wage. That amount would cover the costs of a modern living wage in most areas and give families considerably more buying power than they currently have. There are several secondary and tertiary benefits to enacting a $15 minimum wage, as explained by the New York Times. Studies have shown that:

• Low-skilled workers report fewer unmet medical needs in states with higher minimum wages. 
• Rates of smoking decrease in communities where the minimum wage rises as residents work their way out of poverty and have the time and mental health to quit. 
• Raising the minimum wage by even $1 would decrease child-neglect reports by 10%.
• Increasing the minimum wage can reduce the number of homes that have their water and lights shut off while simultaneously allowing families to keep food in the pantry so kids and older relatives can eat. 

These benefits not only help the workers who are directly affected—they can also ease the financial burden of federal, state, and local governments to cover welfare and healthcare programs like SNAP, low-income housing assistance, and Medicaid. 

Lessening the need for poverty-driven assistance can free up funds for other programs or infrastructures. It can also lead to lower taxes in communities, increasing residents’ spending power.

Does a higher minimum wage increase prices?

A primary argument against raising the minimum wage is that raising wage costs will increase operating costs for businesses, causing business owners to raise their prices and pass that burden onto customers. 

This could create a snowball effect: the government raises the minimum wage again, only for businesses to raise prices again, and so on. Opponents of raising the minimum wage also argue that employers will hire fewer workers and turn to automation to avoid hiring people entirely. 

However, preliminary studies show that all of these claims might not be as dramatic as they seem. Over a 5-year analysis of McDonald’s locations, many of which opted to pay above the minimum wage to better retain workers, a 10% minimum-wage increase led to only a 1.4% increase in the price of Big Macs but did not affect the sales of Big Macs in any way. 

Yes, the cost of paying workers was passed onto customers—but no one was forced to buy a $15 burger. 

There are benefits for employers who offer a living wage. 

Paying employees a minimum living wage of at least $15 may seem expensive, but there are long-term benefits for your business and the community. You’re more likely to retain workers who are paid well, and those employees can then shop at local businesses—giving your neighbors and customers more money to buy from you. Your workers also pay taxes that benefit your area. 

Consider your state’s minimum wage and if your team members could benefit from a raise.

Cash flow is a critical metric every small business needs to pay attention to. It reveals your company’s financial health in the immediate present by comparing money flowing in and expenses flowing out. While knowing your revenue is obviously important, cash flow shows you how much actual money is moving into and out of your bank accounts.

With some math and some informed conjecture, you can chart the expected cash flow of your business for the future.

Why Is Cash Flow Projection Important?

Cash flow projections, then, predict your cash flow in the future. A cash flow forecast can help you circumvent dreaded cash crunches, which is when your business needs to spend money but there isn’t enough cash on hand to cover the expense. Cash crunches are damaging to any business, and they can be ruinous for young or very small businesses.

Fortunately, with some preparations, you can project your future cash flow and determine how to focus on creating cash flow.

Cash Flow Forecast vs. Projection

No matter what you call your cash flow documents, you should prepare several based on different potential futures. It is a good idea to prepare one cash flow projection based on your present business, as well as a best-case cash flow projection and a worst-case cash flow projection.

How Do You Calculate Cash Flow Projections?

Accounts receivables includes money that is expected to flow into your business, such as sales and payments from client invoices. Grants, rebates, loans, and funding are all considered receivables, too.

Accounts payable is the other side of the equation. Payables include anything your business spends money on: your salary, payroll, inventory, overhead, rent, taxes, and all expenses.

A cash flow statement compares accounts receivables to accounts payable. A cash flow projection predicts your cash flow over time.

To create a cash flow projection, it can be wise to start with the past. Look at 12 months ago and record how much cash was in your bank account—this amount is your starting balance in this example. Break down the past 12 months in terms of receivables and payables. Try to categorize your income and expenses as much as possible to get a better sense of where your money is coming from and what you are spending it on.

For the first month, subtract the total amount of payables from your total receivables. This calculation gives you your cash flow for the month. If it is negative, subtract it from your starting balance. If it is positive, add it to your starting balance. This new balance is the starting balance for the following month.

Repeat these calculations for the entire 12-month span and you’ll have a cash flow chart for your business.

The Small Business Administration has several great templates you can use to make this easier, including a cash flow projection template.

To predict into the future, you can sometimes reuse a lot of the data from the previous 12 months if your business stays stable in that regard. If you know of the specific revenues, funding, and costs that your business will incur in the future, you can use that data, although you should include some contingency spending.

If you are less sure about the future, start with what you know, like rent payments and clients who pay you a specified amount on a repeating basis. Then make educated guesses about what your cash inflows and outflows will be over the next few months. Here is where it makes sense to create several different cash flow projections for your status quo, best-case, and worst-case scenarios.

The time extent of your predictions is up to you, but you should think about your available data. If your company is well-established, you can create projections for many years into the future. If your company is very young, though, it might be more accurate to think in terms of a few months to a year out.

What Is a Cash Flow Projection Example?

Is Positive Cash Flow More Important Than Profit?

You should think about and create forecasts for both profit and cash flow.

The words “flexible” and “financing” don’t seem like they should be in a sentence together. When you think of financing, you may think of a stuffy banker stamping rejections on loan applications. Maybe you think about how your business is stalled in growth because you’ve reached the end of your credit line. It is not often that you think about financing options that are flexible to your needs. They do exist, however. Here are some flexible financing options for your small business.

Does your financing plan account for unexpected losses?

As we have all seen, life is unpredictable. Your business could be performing well, but then revenue may drop off a cliff for outside reasons. Here is where that flexibility will come in handy. The pandemic has been awful to small business owners, and it has also shed light on some huge holes in small business finances. Many small business owners turn to personal funds to keep their businesses afloat because they lack cash reserves. If you want to avoid this scenario in the future, have a financing plan that is flexible and can accommodate unforeseen challenges.

Flexible financing options.

Many business owners found they were at risk of breaching their banking covenants with the sudden revenue loss. Some business owners were struggling to meet payroll. Others had to close altogether. To keep the lights on for your business, you either need a large cash reserve or flexibility in your financing. If you have maxed out a bank line of credit, do you have access to working capital from somewhere else? Is your bank willing to extend your credit limit?

Equipment financing

It is worth considering some supplemental financing options to round out your financing plan. Equipment financing is a great option that can unlock working capital to support your business growth. Equipment financing is a loan that you can use for specific reasons, like buying manufacturing gear or any other equipment you need for your business. If you are looking to upgrade your cybersecurity and tools because you have moved mostly remote, equipment financing can cover those costs. This type of financing will be a loan that probably has strict repayment terms, but you can use the money pretty flexibly for your business’s needs. 

Accounts receivable financing.

Accounts receivable financing can help you meet payroll while waiting to collect on your receivables. In simpler terms, the amount of capital you can access is based on the amount of capital you are waiting to collect from your customers. With accounts receivable financing, you can add to your team without the stress of adding to your overhead. Since it’s based on your outstanding invoices, it does not require a high credit score or lengthy time in business, which makes the approval requirements very flexible. This type of financing is similar to a line of credit, but the limit will not be as rigid. Typically, the higher your accounts receivable, the more capital you can access.

Line of credit.

A line of credit gives you some flexibility in drawing capital and repaying it. You don’t have to use all the money, and you only pay interest on the amount you use. Online lenders and traditional banks offer lines of credit, and it’s a great tool to have available if you want a more flexible financing plan.

Business cash advance.

A cash advance is basically a lump sum of cash that is repaid through daily or weekly withdrawals based on your future earnings. These are typically costly because the interest rates are high. Make sure you read your contract carefully before taking out a cash advance.

Which Flexible Funding Option Is Right for You?

Most of these financing options can work together to round out your financial plan. For example, you can use accounts receivable financing to cover your payroll and also take out an equipment loan to cover your production tools. You could use a cash advance alongside a line of credit. It is crucial to consider your business and your industry when signing up with a new lender. It’s best to choose a lender that knows your industry and can offer solutions to your unique financing challenges. Ultimately, your financing plan should include some flexibility to account for sudden gains or sudden losses.