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Every business will face an emergency at some point. Building a cash reserve will help your small business to weather the storm. 

What is a cash reserve?

Cash reserves are funds set aside to cover unexpected expenses or financial emergencies. It serves as a crucial safety net for small businesses.

How much money should go into a cash reserve?

Step one for building a cash reserve for your business is understanding how much money you need. Look at your finances and determine your average monthly cash outlay. Based on your business’s needs, set a goal to save enough cash to withstand whatever timeline you believe is necessary. 

At the bare minimum, you should have at least 3 months’ worth of savings in your reserve at any given time. Ideally, you would save up to 6 months’ worth.

Review a list of non-negotiable expenses each month. These costs include your rent, employee pay, and vendor agreements. If you want to save even more, you can look for negotiable expenses (or expenses that you could cut if your business closed) and save for those as well. These costs can include marketing, materials, and inventory.  

To calculate your ideal business cash reserve amount, understand that you should expect zero revenue during an emergency closure. Your business will need to rely on your reserves entirely. For example, a hurricane could shut down your business for a month and require repairs. During this window, there may be no way for your business to earn a profit, and you would need to eat into whatever cash reserves you had.

You never want to face a situation where your business will have to close for 3–6 months, but having enough cash available to sustain your company through that downtime will give you some peace of mind.

Treat your cash reserve like a fixed expense.

You likely have several fixed expenses each month—these costs are recurring and do not fluctuate monthly. Common fixed expenses for small businesses include rent, insurance, and car payments for fleet vehicles. If you are serious about setting up a cash reserve, treat it as an additional fixed expense. 

Move your savings into a separate account, or create a label within your accounting system for the cash reserve. This way, you will allocate funds to the cash reserve automatically before you look at your more dynamic costs or calculate your monthly profits.

You don’t need to set aside much each month (even a few hundred dollars monthly will add up over a year). However, the sooner you have your reserve built, the better off your business will be if you need to close suddenly for an extended period.

Create a guide for when you can use your reserve.

Whether you are a small business owner with a few employees or a growing brand with a large team, develop a policy for when it’s acceptable to pull from your cash reserve. These guidelines can be a simple written agreement that you keep in your accounting documents or part of your company’s financial bylaws. 

This guide is meant to prevent abuse from you and your team—you don’t want to pull from your cash reserve for small problems and repairs, diminishing the amount you have saved. It’s entirely possible to eat away at your reserve if you don’t have a plan in place for when to use it. 

Consider creating guidelines to approve the use of these funds. For example, you could require both co-owners to sign off on using funds or require board or investor approval. These steps help create safety nets within your company to protect your funds until you really need them.

Pay back your reserve if you use it.

If you dipped into your cash reserve during the pandemic or needed it for other emergency expenses, don’t forget to pay it back afterward. Cash reserves are meant to be used from time to time, but they are also meant to be repaid when used. 

If you’ve followed the advice above, you’ll have established your cash reserve as a fixed expense so it will begin replenishing quickly. However, if you drained a large portion of it, you might want to increase your monthly repayment amount or even consider adding a lump sum to the reserve.

Any cash reserve is better than no cash reserve. 

Don’t get overwhelmed with the idea of needing several months of savings immediately. If you feel like creating a cash reserve is an impossible task, then you’re more likely to give up in a few months. 

Know that your reserve is going to start small and that it’s okay. Any money you have set aside will help. It doesn’t matter how much or how little you put into your cash reserves—over time, that money will grow. Eventually, you’ll have a safety net to keep your business thriving through any crisis.

Maybe your company is at a crossroads. Or perhaps you’re considering what strategies to implement for the year ahead. Maybe you want to evaluate how your current systems are working or whether you should go ahead with a new product launch. 

There’s no doubt that these can be overwhelming issues and decisions for business owners to tackle. The good news is that there’s a helpful tool you can use to facilitate your decision-making process: a SWOT analysis. 

You may have heard the term before and written it off as too complicated or not a fit for your small business. But, in reality, a SWOT analysis is an assessment tool that’s simple to use and provides a big-picture view of your company's overall status. You can use it to set goals, determine risks, plan, and identify critical issues that impact your business. 

Wondering how to get started? Let’s dig into why a SWOT analysis should be in your business toolkit and how you can conduct one.  

What is a SWOT analysis?

A SWOT analysis can and should be performed by businesses of all sizes. Whether you're just starting out or well-established in your industry, you can benefit from performing a SWOT analysis.

SWOT is an acronym for:

• S: Strengths
• W: Weaknesses
• O: Opportunities
• T: Threats

You’ll identify topics under each letter of the acronym to grasp the internal and external forces that can impact the success and well-being of your company.

Developed in the late 1960s, SWOT is a well-respected and highly-practiced business analysis process. Often included as part of an overall business plan, it can also be used throughout a company's lifespan for strategic planning, to prepare for significant changes, and to support business growth. 

Why Perform a SWOT Analysis?

When you're faced with a strategic decision or looking for ways to improve your business, conducting a SWOT analysis is an essential place to start. Depending on your industry and your activities, a SWOT analysis can be completed every 6 months to one year or as needed to address critical decisions and shifts in your industry.

Companies may want to complete a SWOT analysis for many different reasons, and there are numerous benefits associated with performing one. A regular SWOT analysis can help you: 

• Jumpstart strategic planning for the upcoming year
• Understand your competitors and industry
• Improve operations
• Discover new opportunities for growth in your market
• Identify and adjust for risks
• Reevaluate current strategies that may not be working
• Prepare for expansion or new product rollouts
• Brace for and proactively respond to emerging threats
• Decide where to focus your resources

Needless to say, that handy little acronym can reveal a lot about your business. 

How to do a SWOT analysis.

Before you get to work on your own SWOT analysis, let's first take a closer look at the elements you’re analyzing.

In a SWOT analysis, there are two types of factors: internal and external. Generally speaking, the internal ones are elements you have control over—like your resources, people, and operations. In contrast, external elements are out of your control and would be there with or without your business—like your industry, competition, and market.

Here’s how that plays out in your SWOT analysis: 

• Internal factors: Strengths and weaknesses
• External factors: Opportunities and threats

Now, let’s break down each of the four pieces of the acronym. 

Strengths

What makes your company strong? What are you doing right? These are some of the queries you'll want to answer when considering your company's strengths. As the name implies, strengths focus on the elements of the company where you excel and stand out from the competition. 

EXAMPLE: Our high-quality customer service is unmatched in our industry. 

Weaknesses

Weaknesses are where your company falls short. It can sting a little to pick apart all of the things that you aren’t doing right, but it’s important to figure out where you could improve and areas where your competitors are performing better. After all, these weaknesses stand in the way of you achieving your business goals. 

EXAMPLE: We struggle with retention and have high staff turnover. 

Opportunities

Opportunities are where you tap into possibilities that could help your company grow. Think about what gaps in the market you could fill in or what trends you could take advantage of. Don’t limit yourself here—this piece is all about dreaming big. 

EXAMPLE: Our customers have been requesting a new product that we could easily launch. 

Threats

Threats include any outside forces that could negatively impact your business. Is your company at risk? It’s not a fun question to answer, but it’s an important one. Threats are elements that could harm your company and could range from changes to regulations to an economic downturn. 

EXAMPLE: We have a lot of new competitors cropping up, and the market is becoming saturated. 

You won’t just identify one topic for each letter of the acronym—this is all about thinking critically and generating as many ideas as possible. Aim to come up with at least 3 answers for each letter of your SWOT analysis. 

SWOT analysis example

Strengths

• Strong Brand Recognition: Our brand is well-known and respected in the industry, which builds customer trust and loyalty.
• High-Quality Products: We consistently produce high-quality products that meet or exceed customer expectations.
• Skilled Workforce: Our team consists of highly trained professionals who bring a diverse range of skills and expertise.

Weaknesses

• Limited Market Presence: Our presence is concentrated in a few key markets, leaving room for growth in other regions.
• High Operational Costs: Maintaining our high standards of quality increases our operational costs, impacting profitability.
• Outdated Technology: Some of our production processes rely on outdated technology, which can slow down efficiency.

Opportunities

• Market Expansion: Emerging markets present an opportunity to expand our reach and increase market share.
• Innovative Technologies: Investing in new technologies can streamline operations and reduce costs.
• Sustainability Trends: Growing consumer interest in sustainability provides a chance to develop eco-friendly products and enhance our brand image.

Threats

• Intense Competition: Increasing competition from both established brands and new entrants poses a continuous threat.
• Economic Fluctuations: Unpredictable economic conditions can impact consumer spending and our sales.
• Regulatory Changes: New regulations in our industry could require costly adjustments to our business practices.

How to execute a SWOT analysis for your small business.

You’re probably picking up on the fact that a SWOT analysis doesn’t need to be overly complicated, and you don't have to be a big corporation with many different departments to conduct one.

In fact, even solo entrepreneurs will find this to be a useful tool. Here are a few more tips to help you get started on the right foot: 

• Determine Your Reasoning: As mentioned previously, a SWOT analysis can be performed yearly, every 6 months, or as needed. It can be used for a specific area of your business, as part of a product rollout or business plan, or to help decision-making. Understand why you want to do one right now, as that’s an important context to keep in mind as you move forward.
  
• Gather Your Team: The more input and perspective you have, the better. Decide who you need to include to help you complete as candid of a SWOT analysis as possible. Typically, SWOT analyses are held as brainstorming sessions with key personnel within your company. They may include project managers, department heads, owners, and other staff. If you run your business alone, ask for input from those close to you or who are somewhat involved in your company, such as friends, family, a mentor, or your accountant.
  
• Create Your SWOT Framework: A typical SWOT analysis is displayed as a 2-by-2 grid. Each SWOT element (strengths, weaknesses, opportunities, and threats) is represented in clearly labeled quadrants. You can easily create the grid in Word or PowerPoint, but you can also use SWOT software, free templates, and generator options available online. Ones you may be interested in include Canva, SmartSheet, Creatly, Lucidchart, and SWOT.
  
• Solicit Honest Feedback: Remember, you don’t have to go it alone. Ask your staff members questions and write down all their responses to get as well-rounded of perspective as possible.
  
• Analyze the Results: Your SWOT analysis doesn’t do any good if you don’t take action on what you uncover. It’s up to you to use that information to determine your business strategy moving forward. Create an action plan with deadlines to address issues over the short- and long-term. We’ll talk about this more in the next section. 

How to use a SWOT analysis.

Once you've completed the above steps, it's time to analyze your findings. While a SWOT analysis offers a useful review of what's working in your company and what isn't, its real value lies in combining the results.  

The process of combining elements of a SWOT analysis is known as matching, and it can help you look at the information in new ways and reveal other findings. Need some inspiration? You can combine elements in the following ways:

• Strengths + Opportunities: Can determine areas where you can use your strengths to seize upon opportunities. 
• Weakness + Threats: Can identify the weaknesses you should work on to avoid potential threats.
• Weakness + Opportunities: Can show you where to improve your weaknesses so you can take advantage of opportunities.
• Strengths + Threats: Can indicate where you can use your strengths to diminish or remove threats. 

Another way to look at your findings is through something called converting. Here you'll want to analyze the data you've collected on your weaknesses and threats to see if you can convert them into positives.

Once you've accumulated all of your information, you can now create an action plan that you can apply to the appropriate level of your business. 

Get started with your own SWOT analysis.

Whether you want a once-a-year overhaul of your business plan or need to decide if it's the right time to expand, a SWOT analysis is where you'll want to begin. 

As an integral part of the decision-making process, this helpful tool can provide you with a comprehensive look at your business and help you determine your next steps. That way, you can make business decisions with more confidence—and less confusion. 

What’s the difference between cash flow and profit? 

As a business owner, these two terms can feel interchangeable. But the truth is, they’re far from it—and knowing when to prioritize one over the other can help you make better strategic decisions in that moment.

What is cash flow?

Whether you’re just starting a business or have an established brand, you’ll feel the effects of cash flow similarly. Cash flow is simply the movement of liquid money (cash) in and out of your business at a specific point in time.

When you execute a business transaction and receive money, that’s an inflow of cash. When you spend money on inventory, bills, or other expenses, that’s an outflow of cash. As you track the movement (flow) of cash in and out of your business, you’ll find that you are either operating:

If you have positive cash flow, you have enough cash to cover your financial obligations. If you’re operating with negative cash flow, you are not bringing in enough cash to cover your current expenses and will likely need additional business financing to continue running at your current pace.

What is profit?

Profit refers to the remaining revenue after all expenses are paid. If you have a positive value after subtracting total expenses from total revenue, then you’re profitable. If you have a negative value, you’re spending more than you’re making over that timeframe and are operating with a loss.

Profit can be used in many ways. You can distribute profit to other owners or shareholders, invest it back into the business, or save it in a reserve fund in case of emergency.

For many small businesses, profitability fluctuates throughout the year. Take toy and hobby retailers, for example, which arguably see the bulk of their sales in the final quarter of each year. This imbalance creates cyclical ebbs and flows of profitability, which can be misleading without the proper context.

What’s the difference between profit and cash flow?

Cash flow and profit are just two of many financial metrics business owners and investors use to assess the health of a company. Both measurements have their own advantages and disadvantages, and it’s up to you to understand how to use each to make better strategic decisions.

However, the difference between profit and cash flow can be tricky to grasp because they both relate to the balance of money within your business. Complicating the matter further, businesses can actually operate with a positive cash flow without being profitable—and may be profitable with a negative cash flow.

Timing is the subtle difference that needs to be considered when comparing cash flow to profit.

Cash flow focuses on the past, looking at the actual money that has come in or left your business at a specific point in time. Profit looks at the past, present, and future of your business and includes liabilities like accounts receivables and long-term debt, which are expected expenses or future cash.

For example, if you sell an item on credit, you don’t actually have the cash on hand—it’s an account receivable, which still needs to be collected. However, it’s considered revenue because the liability of payment has passed on to your customer, and it is used to measure profitability.

On the other hand, cash flow will only measure money that comes in and leaves your business. As a result, it won’t recognize that transaction until the cash is received from the credit purchase.

When to prioritize cash flow vs. profit.

Cash flow and profit both have their purposes as financial metrics, and business owners would be wise to measure and analyze each ongoingly and for different scenarios.  

For example, if you want to have an overarching view of your business and its long-term viability, profit can shed more insight than cash flow because it takes a holistic view of your income and financial obligations. However, if you want to see a snapshot of your financial efficiencies at a specific point in time, cash flow may give you more perspective because it’s focused more on your day-to-day operations.

Cash flow or profit: What’s more important?

Cash flow and profit are both important, and business owners and investors may focus on each at different times and for specific reasons. Determining whether profit or cash flow is more important will be based on your unique situation.

Understanding the relationship between cash flow and profit can help you identify when to look at one or the other. This insight alone will put you in a better position to make the right decisions to guide your business forward.

Whether you’ve gone through a personal or business bankruptcy, lenders will consider past bankruptcies when making a loan decision. This post will cover common questions about bankruptcy and how it impacts your loan application.

Can you get a business loan after bankruptcy?

Yes, you can qualify for a business loan if you’ve had a bankruptcy. However, lenders will want to see that you’ve rebuilt your credit and will have varying waiting periods before you are eligible.

When can you qualify for a loan after bankruptcy?

Bankruptcy policy will vary by lender. Some will require waiting seven years when the bankruptcy will be removed from your credit report. Others will consider your application within two to three years after the bankruptcy is closed if you’ve rebuilt your credit score. Some lenders will disqualify you if you have had multiple bankruptcies.

Can you get an SBA loan after bankruptcy?

Yes, you can qualify for an SBA loan if you’ve had a previous bankruptcy. The policy will vary by lender but generally starts at no bankruptcies or foreclosures in the past three years with no more than two total bankruptcies. 

Types of bankruptcy.

Chapter 7 bankruptcy

Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, involves the sale of a debtor's non-exempt assets by a trustee. The proceeds are used to pay off creditors. This type of bankruptcy is designed for individuals or businesses that don’t have the means to pay back their debts. For businesses, this usually means the end of operations. However, individuals might see it as a fresh start, albeit with a significant impact on their credit report for 10 years.

Chapter 11 bankruptcy

Chapter 11 bankruptcy is primarily for businesses, allowing them to continue operations while reorganizing their debts. It’s a complex process that involves negotiating with creditors to modify the terms of the debt without selling off assets. This form of bankruptcy can be expensive and time-consuming but offers businesses a chance to recover and eventually return to profitability.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is aimed at individuals with a regular income who want to pay their debts but are currently unable to do so. It involves a repayment plan lasting three to five years, allowing debtors to keep their property while making more manageable monthly payments towards their debt. The successful completion of the payment plan can lead to the remaining debts being discharged. Chapter 13 bankruptcy remains on an individual's credit report for seven years, offering a less severe impact compared to Chapter 7.

Waiting periods

Typically, a bankruptcy will remain on your credit report for at least 7 years. However, because the court filings are public, the fact that you declared bankruptcy would remain part of the public record if someone searches for it.

Steps to qualify for a loan post-bankruptcy.

Rebuild your credit.

Rebuilding your credit after bankruptcy is crucial for qualifying for a business loan. It may seem daunting, but it's possible with a strategic approach:

Start by regularly checking your credit report for inaccuracies. Dispute any errors that can negatively impact your score.

Consider obtaining a secured credit card. This requires a deposit acting as your credit limit.

Make small purchases with this card and pay off the balance in full each month. This shows lenders your responsible credit use.

Always make payments on time, keep your credit utilization low, and be patient. Credit rebuilding takes time, but consistent effort will gradually improve your creditworthiness.

Research lenders.

Find out which lenders will work with business owners with a prior bankruptcy and the thresholds you'll need to meet before you apply.  If you apply through Lendio, we can help match you with lenders who will work with someone with your credit history.

Grow business income.

Lenders will also consider your business's current financial standing and future potential when evaluating your loan application. Focus on increasing revenue and building strong cash flow to demonstrate the ability to repay a loan.

As more American consumers utilize next-generation payment methods like touchless transactions or smartphone payments, there’s a general sense that we’re headed toward a cashless world. However, there are still plenty of small businesses that operate exclusively in cash—and will continue to do so for years to come.

If you’re trying to decide whether you should accept credit card payments, it’s never been easier. While it might not be the clear choice for your business right now, you should at least be aware of the credit card process in case you want to accept these types of payments in the future.The process to accept credit card payments will vary based on what sort of business you own, how you currently accept payments, and what type of credit card processing system you choose. This guide will help you to decide whether you should take advantage of the estimated 441 million open credit card accounts in the United States.

Why accept credit cards?

Banks, credit card companies, and financial media outlets will tell you that you should definitely accept credit cards as a small business. There is a fair amount of data—and probably your own lived experience—to back up the notion that businesses that accept credit cards are poised to make more money.

Think about your own shopping—there have probably been situations where you had no cash on you or not enough cash to buy all the items you wanted. Furthermore, obtaining cash itself can often be inconvenient, costly, or impossible.  

Years of studies and polls back up the claim that credit card users make more purchases and spend more per transaction. The average credit card transaction was $95 in 2013, compared to the average $39 value of a cash transaction, according to a study by San Francisco Fed.

Another economic phenomenon surrounding credit card use is so-called “payment coupling.” Payment coupling is the association between purchase decision-making and the actual separation of a customer from their money. A landmark 2008 study found that credit cards ease the “painful” part of shopping, i.e., seeing your wallet or bank account get reduced.

“The conceptual underpinning of our research is that payment modes differ in transparency or the vividness with which individuals can feel the outflow of money, with cash being the most transparent payment mode,” the American Psychological Association study posits. “We argue that the more transparent the payment outflow, the greater the aversion to spending or higher the ‘pain of paying,’ leading to less transparent payment modes such as credit cards and gift cards (vs. cash) being more easily spent or treated as play or ‘monopoly money.’ Further, to the extent that the transparency of paying underlies differences in spending behavior, altering the salience of parting with money should attenuate the difference across payment modes.”

Why you might not be able to accept credit cards.

There can be a few reasons why it could be very difficult—or even impossible—to accept credit cards. Unless you want to use a manual credit card imprinter, you need a reliable internet connection to accept credit cards. Your brick-and-mortar store might also be located where cash is common—retailers in urban or very rural areas might serve customers who are accustomed to carrying around a good amount of cash.

Why you might not want to accept credit cards.

The biggest reason not to accept credit card payments, for many business owners, is the small fee charged to conduct every credit card transaction. These fees add up—which is why some businesses are still cash-only, especially in areas where customers carry a lot of cash. It’s also possible that your business is set in its ways and doesn’t have a culture of adapting to new practices.

How credit card processing works.

When a customer uses a credit card to make a purchase at your business, the transaction initiates a complex process involving several parties. First, the credit card terminal collects the card information and sends it to your merchant bank's processor. The processor then forwards this data to the cardholder's issuing bank via the appropriate credit card network (such as Visa or MasterCard) to request transaction authorization.

The issuing bank checks the cardholder's account for sufficient funds and any potential fraud alerts before approving or declining the transaction. This approval (or denial) is then sent back through the network to your merchant processor and finally to your terminal or point-of-sale system, where the result is displayed. If the transaction is approved, the funds are later transferred from the cardholder's account to your merchant account, minus any processing fees.

This whole process, while intricate, happens almost instantaneously, allowing for a seamless transaction experience for both the business and the customer.

How can I accept credit card payments for my small business?

To start accepting credit card payments for your small business, you'll need to follow a few essential steps:

• Open a merchant account: A merchant account is a type of bank account that allows your business to accept credit and debit card transactions. You can open a merchant account through most banks or through a payment processing company.
• Choose a credit card processing system: There are various types available, ranging from traditional countertop credit card terminals to mobile and online payment processors. The right system for you will depend on the nature of your business, the volume of transactions you process, and your budget.
• Set up the necessary equipment: This may involve installing software, setting up hardware, or both. If you're not tech-savvy, many providers offer support services to help with setup.
• Educate yourself and your staff on how to use the system efficiently and securely: This includes understanding how to process transactions, issue refunds, and handle any potential disputes. Ensuring that your team is knowledgeable about these processes will enhance the customer experience and help your business run smoothly.

If you decide to accept credit card payments, there are a few ways to do so. You’ll want to think about how your business operates and is structured. Shopping with a credit card is common these days because there are so many ways to conduct credit card transactions—in recent years, revenue-minded payment processors have been aggressive in making the process as simple as possible. With a little bit of planning and research, you can find a credit card payment system that works for you.

Types of businesses that can accept credit cards.

Virtually any type of business can accept credit cards, from retail stores and restaurants to service providers and online businesses. Here are a few examples:

• Retail stores: Whether it's a clothing store, a bookstore, or a hardware shop, retail businesses benefit greatly from accepting credit cards due to the ease and security it offers to customers.
• Restaurants and cafés: With the rise of dining out culture, accepting credit cards can streamline the payment process and improve the dining experience for guests.
• Service providers: Professionals like consultants, freelancers, and contractors can accept credit cards, making it easier to receive payments for services rendered, especially for larger projects.
• E-commerce sites: Online businesses are perhaps the most in need of accepting credit card payments, as it allows them to accept transactions from customers worldwide.
• Healthcare practices: Dental, medical, and other healthcare services are increasingly accepting credit card payments for treatments and consultations, providing flexibility and convenience for patients.
• Subscription-based businesses: For businesses that offer products or services on a subscription basis, credit card payments allow for recurring billing, ensuring a steady cash flow.

No matter the industry, accepting credit cards can help businesses increase sales, improve cash flow, and provide a better customer experience.

Different ways businesses accept credit cards.

Depending on how you operate your business, there are probably several options for accepting credit cards. If you run an online-only business, for example, you might find that credit cards are the easiest way to accept payment. You might have some choice here, too—many brick-and-mortar businesses have switched to mobile payment providers instead of the traditional credit card processors.

In-person credit card payments.

If you want to set up traditional in-person credit card transactions like you would find at a typical restaurant or retailer, you need to buy a point-of-sale (POS) system. This set of hardware and software will enable you to accept credit cards. These systems include credit card readers that communicate to your merchant account.

Mobile payments

Mobile payments, also called payment service providers (PSP), require less investment than a standard merchant account. Common examples include Square and Stripe. Many PSPs now combine a merchant account with a POS system, which is why they’ve become very popular among small businesses. As PSPs disrupt the POS field, you should look at your options’ terms and fees to make the best choice. Typically, PSPs are easy to use and inexpensive to set up, but a traditional merchant account system might be more negotiable and cheaper to use as your business ages and expands.

Online credit card payments.

For e-commerce operations, accepting credit cards is fundamental—there’s likely no other easy way to accept payment. Fortunately, however, no hardware is required. The website you use for your store, like Etsy, might also enable easy-to-use credit card payments. Many PSPs and e-commerce gateways, like PayPal or Shopify, offer apps or widgets that you can put onto a website. Many even allow you to sell items through social media.

Over-the-phone payments.

Accepting credit card payments over the phone is a convenient option for businesses that conduct sales remotely or want to provide an additional payment method to their customers. This method typically requires a virtual terminal, which allows you to enter credit card information manually into an online system. Virtual terminals are offered by most merchant service providers and payment gateways, and they can be accessed through a computer or mobile device with an internet connection. This payment option is particularly useful for service providers, such as consultants or businesses that take orders via phone. It's essential to ensure that all over-the-phone transactions comply with PCI DSS (Payment Card Industry Data Security Standard) guidelines to protect your customers' credit card information and reduce the risk of fraud.

Benefits of accepting credit card payments.

Accepting credit card payments can significantly benefit your small business by enhancing the customer experience and expanding your customer base. Here are some key advantages:

• Increased sales: Studies have shown that customers tend to spend more when using credit cards compared to cash. This can lead to higher average transaction values and increased overall sales.
• Improved cash flow: Credit card transactions are processed quickly, often resulting in funds being available faster than with checks. This can improve your business's cash flow, allowing you to reinvest in your operations or settle debts more swiftly.
• Customer convenience: By offering more payment options, you cater to a wider range of customer preferences, making it easier for them to purchase your products or services. This convenience can improve customer satisfaction and loyalty.
• Competitive edge: In today’s digital age, businesses that do not accept credit cards may be at a disadvantage. Accepting credit cards can provide a competitive edge by aligning with consumer habits and expectations.
• Global market reach: Credit card acceptance is crucial for online businesses that aim to reach customers beyond their immediate geographic area. It enables businesses to easily accept payments from customers worldwide.
• Enhanced security: Credit card payments often come with security measures that can reduce the risk of fraud. Payment processors and merchants use encryption and other technologies to protect cardholder data.
• Streamlined accounting processes: Electronic transactions can simplify bookkeeping, making it easier to track sales and manage finances. Many payment processors integrate with accounting software, automating the reconciliation process.

By accepting credit card payments, small businesses can not only keep up with the evolving landscape of consumer preferences but also leverage these benefits to grow and thrive in a competitive market environment.

How much does it cost to accept a credit card?

The cost of accepting credit card payments can vary substantially based on several factors, including your merchant service provider, the type of transactions you process (in-person vs. online), your sales volume, and the nature of your business. Generally, the costs can be broken down into three main categories:

• Processing fees: These are charged each time a customer uses a credit card at your business. They typically consist of a percentage of the sale, usually between 1.5% to 3.5%, plus a fixed fee per transaction, often ranging from $0.10 to $0.30.
• Monthly fees: Some merchant account providers or payment processors charge a monthly fee for using their service. This can range from $10 to $30 per month, although some providers offer plans with no monthly fees.
• Equipment costs: If you need to purchase or lease equipment, such as a POS system or credit card terminals, there will be additional costs. These can range from a one-time fee of a few hundred dollars to ongoing leasing fees.

For businesses operating online, there may be additional fees for using e-commerce platforms or payment gateways, which can include setup fees, monthly subscription fees, and additional transaction fees.

It's essential to carefully research and compare the terms and fees from different providers to find the solution that best fits your business's needs and budget. Remember, the cheapest option upfront may not always be the most cost-effective in the long term, especially as your business grows and your transaction volume increases.

What's the cheapest way to accept credit cards?

Finding the most cost-effective way to accept credit cards requires a careful consideration of your business's specific needs, transaction volumes, and the types of customers you serve. Generally, the cheapest way to accept credit cards will vary based on the scale of your operations and the average transaction size. However, for many small businesses, payment service providers (PSPs) like Square, PayPal, or Stripe offer competitive rates with low upfront costs, making them an attractive option for businesses just starting to accept credit cards. These platforms typically charge a flat percentage plus a small per-transaction fee, with no long-term contracts or monthly fees, which can be ideal for businesses with fluctuating sales volumes.

For businesses with higher sales volumes or larger average transactions, negotiating a merchant account with a bank or dedicated payment processor might be more economical in the long run. These accounts often come with a monthly fee but offer lower transaction rates, which could result in significant savings over time.

Additionally, leveraging technology such as mobile payment solutions can also reduce costs by eliminating the need for expensive point-of-sale hardware. Ultimately, the cheapest way to accept credit cards is the one that aligns with your business model, provides the flexibility your operation requires, and offers the most value for the fees you pay.

The bottom line.

Choosing the right approach to accept credit card payments is critical for the success of your small business. It’s about finding the perfect balance between cost, convenience, and customer experience. Whether you opt for a traditional merchant account, a mobile payment service provider, or an online payment gateway, each has its own set of advantages tailored to different business needs and customer preferences. Remember that the goal is not just to facilitate transactions but to enhance the overall customer experience, thereby fostering loyalty and driving sales. Keep in mind the future scalability of your business as well, choosing a system that can grow with you. Ultimately, investing in the right credit card processing system is an investment in your business’s future.

A personal credit score determines the level of risk that comes with lending to you. You use it to apply for credit cards and other financing options to cover major purchases. A business credit score works similarly, except instead of evaluating your risk as an individual, financial institutions evaluate your business’s viability.

Like personal credit, business credit takes time to build. While your equity may be able to boost your business credit, the overall goal is to keep your personal and professional finances separate. This guide will review the factors that go into your business credit score range and what a healthy number looks like.

What is a business credit score?

A business credit score is a numeric expression that represents the creditworthiness of a company. It is used by lenders, suppliers, and other financial institutions to evaluate the likelihood that a business will repay its debts. This score typically ranges from 0 to 100 for most scoring models, with higher numbers indicating better creditworthiness.

Unlike personal credit scores, business credit scores take into account factors such as the company's payment history, credit utilization rate, length of credit history, public records including bankruptcies, and the company’s size and industry. A healthy business credit score is crucial for securing financing, favorable loan terms, and establishing trust with suppliers and vendors.

Business credit score benefits.

Having a high business credit score can unlock numerous advantages for your business that go beyond simply qualifying for loans or credit lines. These include:

• Better financing terms: A strong business credit score can help you secure lower interest rates and more favorable repayment terms on loans and lines of credit.
• Increased borrowing power: With a higher business credit score, you may be able to access larger amounts of capital for major purchases or expansions.
• Improved supplier relationships: Many suppliers and vendors use business credit scores to determine whether or not they want to extend credit to a company. A strong business credit score can help establish trust and open up more opportunities for trade credit.
• Separation of personal and professional finances: By building a solid business credit score, you can keep your personal assets separate from your business assets, protecting yourself in the event of any financial issues.
• Insurance policy rates could be lower: A good business credit score may influence your insurance premiums, potentially leading to lower rates on your business insurance policies.

Overall, investing time and effort into building and maintaining a solid business credit score positions your company for better financial health and long-term success.

How a business credit score works.

A business credit score, much like a personal credit score, is a reflection of a company's financial responsibility and creditworthiness, but with a focus on the business's operations. When a business applies for loans or credit lines, lenders and suppliers will examine this score to decide how risky it is to offer credit. 

This score is calculated based on several factors, including the timeliness of bill payments, the amount of available credit used by the business, the length of the business's credit history, any legal filings such as liens or bankruptcies, and the company's financial stability. Essentially, this score is a numeric summary of a business’s financial history and current financial position, aimed at predicting the likelihood of the business fulfilling its financial obligations.

What goes into your business credit score?

Multiple factors contribute to your business credit score—some are in your control while others aren’t. A few of these factors include:

• Your payment history: If you have paid off your loans steadily over time without missing any payments, you will have built a strong business credit score.
• Credit history and age: How long has your business had financial liabilities? A new business will have a much lower credit score than a company that has maintained good credit for the better part of a decade. 
• Number of accounts: How many accounts do you have? How many are active with existing debits or credits? 
• Credit utilization: What percentage of allowed credit do you have? Have you reached the maximum limits of your business credit cards, or do they still have available credit for you to use? 
• Types of credit: Credit bureaus look for multiple funding sources, otherwise called a credit mix. 
• Recent credit inquiries: Have lenders recently requested information about your business? How many and how long ago?  

Many of these factors are also used for personal credit scores. However, they take on a new meaning when applied to a business. 

For example, the severity of the debt you take on also depends on the size of your business and your expected profits. Your credit can also be impacted by vendors that send unpaid invoices to collections or report overdue bills that you miss. 

Essentially, almost any financial transaction you make as a business owner can contribute to your credit score, which is why it is so important to maintain good, organized bookkeeping.

What is a good business credit score?

The main difference between a personal and business credit score is the number range. While a personal credit score ranges from 300–850, business credit scores are typically developed on a scale of 0–100. Additionally, there are 3 main business credit score bureaus, all of which use this range. These are Dun & Bradstreet (D&B), Equifax, and Experian.    

As a rule of thumb, the higher the score, the better. If you have a business credit score above 75, then you have exceptional business credit and shouldn’t have trouble securing funding. 

A score of 50–75 is considered fair and you should be able to get funding, though maybe at a higher interest rate or more limited terms. Finally, anything below 50 is considered poor credit and a high-risk account.Each of the three major credit bureaus collects and measures different information to calculate your business credit score.

How to improve your business credit score.

Improving your business credit score is a strategic process that requires consistent effort over time. Here are practical steps you can take to enhance your company's financial standing:

• Pay your bills on time or early: Establish a track record of timely payments, as payment history heavily influences your credit score.
• Reduce credit utilization: Aim to use a smaller portion of your available credit to show lenders you're not overly reliant on credit.
• Update your business information: Ensure your business information is accurate and up to date with all credit bureaus. Inaccuracies can negatively affect your score.
• Monitor your business credit report: Regularly review your credit reports from the major credit bureaus to catch and dispute any inaccuracies or fraudulent activities early.
• Establish trade lines with suppliers and vendors: Use trade credit to your advantage by establishing and maintaining positive payment histories with multiple suppliers and vendors.
• Limit credit inquiries: Only apply for new credit when necessary, as too many inquiries in a short time can indicate risk to lenders and negatively impact your score.
• Build a diverse credit mix: Having a mix of credit types, such as a business credit card, a line of credit, and trade credit, can positively affect your score.

By taking these steps, you can improve your business credit score, which can lead to better loan terms, increased funding opportunities, and a stronger financial foundation for your business.

Check your business credit score.

You can find sample business credit score reports for each of these credit bureaus so you can determine which ones you want to use. The scores should stay relatively equal across each report. 

To access your credit scores, visit the websites of these credit bureaus. You can pay from $40 at Experian up to $100 at Equifax for your report.

Understanding your business credit score range can help you secure funding for startup expenses and company expansion. You can be more aggressive in negotiations with lenders when you have a good score and can take steps to improve it before taking out a loan if you have a poor one. Don’t be afraid of your credit score—use it to make sound financial decisions for your business!

Do you ever ask yourself why we celebrate some milestones with a party while we ignore others? It is de rigueur to celebrate a wedding or a pregnancy with a bridal shower or baby shower, but historically the same love hasn’t been given to accomplishments like earning a Ph.D. or starting a new small business.

Enter: Twitter. Yes, the internet-destination for doom scrolling can also be a bastion of great ideas. While the idea has circulated on the ether of the internet for a minute, talk of business showers appears to have recently picked up steam on the platform. User @EarnYourLeisure tweeted their idea for celebrating new businesses, similar to celebrating the anticipated arrival of a new baby.

Another user agreed and shared her plans to throw her business a shower.

How to throw a business shower.

Business showers are a novel idea, so there isn’t prescribed etiquette to determine how and when to throw a business shower. But since we’ve been to more baby/bridal showers than we’d care to remember, we’re confident we can use that blueprint to create a better, badder shower to celebrate a friend or family member’s newly-minted boss status. 

We know that showers usually involve people, gifts, shows of support, and silly games. Recipients usually register for the gifts because in this case, it’s the utility, not the thought that counts. So how can we make that work for a business shower?

1. Make your guest list: it’s time to invite everyone who wants to shower your business with love and support. Yes, while we believe that should be everyone you know, we recommend limiting invites to your most ardent cheerleaders. That aunt who only cares about whether or not you’re getting married soon is not going to bring the energy you deserve. And neither you nor your business needs that right now. 
2. Send invites: Don’t forget to make Emily Post proud by sending a lovely invitation. You can do a digital invite through Paperless Post or Evite or opt for a paper version. Ask people to RSVP because a.) it’s polite and b.) you’re practicing those Call-to-Action skills that will be very important when running a business. 
3. Choose the venue: If your business has a physical location, that’s the obvious choice. Allowing your friends and family to see your business space is the entrepreneurial equivalent of “feeling the baby kick.” You can also hold the shower at a restaurant or rope one of your friends/family members into hosting it for you. And because we’re in a pandemic, there’s also the option of throwing yourself a virtual shower. 
4. Register: Think of the supplies and tools that you need to lay a strong foundation for your business. Yes, a stapler may be on the list, but you can also ask for gifts like a few months of paid bookkeeping software, a small working capital fund, or shipping supplies. 
5. Enjoy the shower: You’ve worked hard for this. Let yourself relish in the support.
6. Send thank-you notes: We would be remiss in invoking the ghost of Emily Post if we did not also remind you to send a thank-you note for all the gifts you receive. 

What to buy for a business shower.

Okay, so what kind of gifts does one buy (or register) for a business shower? Shower gifts should be useful, thoughtful, and cute (if at all possible—sometimes it is not.). As with other showers, it’s best to get a gift receipt so the recipient can return or exchange the item if they need to. 

• Office supplies: staplers, pens, papers, notebooks, envelopes, etc.
• Computer equipment: laptop, mouse, keyboard, printers, scanners, phone chargers (you can never have too many), etc.
• A mobile payments reader
• Bookkeeping services
• Working capital funds
• Payroll software (if the business will have employees)
• Your expertise: If you have professional expertise that could benefit a new business (like marketing, accounting, business development, etc.), you can consider gifting a few hours of your time to share your insight or your labor. 

Business shower activities.

No, we’re not going to suggest you smell diapers filled with melted candy bars. This is professional. Celebrate a new business venture by embracing the excitement of friends and family to do something to support the business. 

• Social media bonanza: Ask guests to post something on social media. 
• Try and review: Have a product or experience you’d love your friends and family to test? Take them through the experience. It’s great practice for the business owner. Plus, at the end of the experience, guests can tell you what they thought by leaving a review online. 
• Focus group: If you’ve got the whole gang together, why not use it as an opportunity for an impromptu focus group?
• Spread the word: Guests can split up to flyer neighboring areas. 
• Brainstorm: Brainstorm hashtags, marketing approaches, new products, you name it. This is the time to take everyone’s advice and put it in one place. You can ask one person to be in charge of taking notes, the way you’d usually have someone recording the gifts. There are bound to be some great ideas and creative solutions. Even if it doesn’t apply now, these suggestions may help you down the road. 

Don’ts for a business shower.

While it may be tempting to go hog wild, please stop borrowing from baby-party traditions, and please leave “gender reveal parties” alone. Yes, an “industry reveal” party for a friend’s new business does sound very fun, but gender reveal pyrotechnics have already started enough fires. We don’t need more. 

What do you think? Will you be embracing business showers? Are there any business shower gifts that we missed? Let us know in the comments.

Asset-based lending, also known as asset-based financing, is a type of business loan or line of credit that companies secure with collateral. With traditional loans, lenders often emphasize a company’s creditworthiness and cash flow when determining whether to approve applications for business funding. Yet with asset-based lending, the value of the collateral that backs the financing plays a more meaningful role in your business’s ability to get funded and its borrowing capacity. 

How does asset-based lending work?

In asset-based lending, a business secures a loan or line of credit by offering its assets as collateral. These assets can include real estate, inventory, accounts receivable, equipment, and other property that holds value. The lending agreement specifies how much money the business can borrow, which is usually a percentage of the collateral's appraised value. This percentage varies depending on the type of asset and its marketability; for instance, receivables might be financed at around 70% to 80% of their value, while inventory may only secure around 50%.

The process begins with the lender evaluating the assets to determine their current market value. If the business defaults on the loan, the lender has the right to seize the collateral, sell it, and recover the owed amount. This makes asset-based loans less risky for the lender compared to unsecured financing, potentially leading to more favorable interest rates for the borrower. However, businesses must consider the risk of losing their assets before entering into such agreements.

How much can you borrow? 

Depending on the lender you work with and other factors, your business might be able to borrow up to 80% of the face value of its accounts receivable. When taking out an equipment loan to purchase equipment, eligible borrowers may be able to secure up to 100% financing. However, if your goal is to use equipment your business already owns as collateral for an asset-based loan, some lenders may be willing to extend only up to 50% of the equipment’s value (depending on the type of equipment, its condition, projected depreciation, and other details).

Pros and cons of asset-based financing.

If you’re considering applying for an asset-based loan to secure additional capital for your business, it’s important to evaluate the pros and cons associated with this type of financing. 

Pros of asset-based financing.

• Qualification requirements: Perhaps the biggest appeal of asset-based financing is the fact that these loans and lines of credit tend to be easier to obtain, compared with traditional business funding options. Cash flow challenges, limited time in business, and even poor personal and business credit scores may not be deal-breakers with this type of financing, depending on the lender. 
• Fast funding: Certain types of asset-based lending may feature faster funding speeds compared with traditional business loans (especially SBA loans). Accounts receivable loans, for example, could provide eligible borrowers with access to capital in as little as 24 hours.
• Less personal risk: With traditional business loans, the business owner often has to sign a personal guarantee to secure funding. Asset-based financing, however, may not feature this requirement (though it’s important to verify the details before signing any financing agreement). 

Cons of asset-based financing.

• Higher costs: It’s common for asset-based financing to feature higher interest rates and fees compared with traditional business loans or lines of credit. In some cases, the cost difference could be significant. 
• Some assets may not qualify: Your asset will need to satisfy a lender’s criteria to qualify as collateral for an asset-based loan or line of credit. In general, acceptable assets are high value, have a low depreciation rate, and are easily converted to cash.
• Loss of asset(s): If your business defaults on its debt, you risk losing the asset(s) it pledged as collateral.

Asset-based lending vs. cash-flow lending.

When comparing asset-based lending to cash-flow lending, it's essential to understand the primary differences between these financing options. Asset-based lending focuses on the value of the collateral that a business can provide, such as inventory, equipment, or accounts receivable. This type of financing is particularly beneficial for companies that have significant physical assets but might not have a strong cash flow.

On the other hand, cash flow lending evaluates a business's future cash flows as the main criteria for the loan. Lenders look at the company’s past and projected cash flow statements to assess its ability to repay the loan. This type of lending is more suitable for businesses with strong and predictable cash flows but fewer physical assets to use as collateral.

The choice between asset-based lending and cash-flow lending depends on the specific needs and circumstances of the business. If a company has valuable assets but faces cash flow challenges, asset-based lending may offer a viable solution. Conversely, for businesses with strong cash flows but limited assets, cash-flow lending might provide a more appropriate form of financing. Both options have their merits and potential drawbacks, necessitating a careful analysis to determine the best fit for the business’s financial strategy.

Is asset-based lending right for my business?

Asset-based financing can come in many different shapes and sizes. Therefore, the best way to determine whether a financing solution makes sense for your business is to research and ask questions before you apply for any new loan, line of credit, or cash advance. 

First, you should make sure your business can afford to borrow additional money. If you’re confident you can manage the new indebtedness and the repayment schedule that involves, you should then assess the risks, benefits, and costs. Finally, take the time to shop around and compare business financing options. Interested in asset-based lending and how your business might benefit from this type of financing solution? Learn more about accounts receivable financing here.