Lending Library

Fearless Fund

Fearless Fund makes small business grants for Black women and women of color who are seeking pre-seed, seed level, or Series A funding—the program is run by women of color as well. There are a few different grant programs available.

Fearless Strivers Grant Initiative: The fund awards 11 grantees $10,000 grants as well as digital tools. Businesses can be located in Atlanta, Birmingham, Dayton, Los Angeles, New Orleans, New York City, or St. Louis.

WOC Grant Program: The Fearless Fund partners with the Tory Burch Foundation and The Cru to award grants between $10,000–20,000. Eligibility requirements include revenue generation (recommended minimum of $100,000), 1–5 years in business, and a woman of color as owner.

Cartier Women’s Initiative

The Cartier Women’s Initiative provides funding for women-led and women-owned businesses around the world. Any sector is eligible, so long as the company aims to have a social and/or environmental impact. There are 3 tiers of financial award grants available: $30,000, $60,000, or $100,000. The Initiative also provides human capital and social capital support. 

Eligibility requirements include:

• For-profit companies
• Early-stage (1–6 years)
• Less than $2 million in fundraising
• Positive impact, based on at least United Nations Sustainable Development Goals
• Applicant must be a woman who holds a primary leadership position at the company
• Majority ownership must be maintained by founders
• English proficiency
• Applicant must be 18 years or older

Comcast RISE

The Comcast RISE program stands for Representation, Investment, Strength, and Empowerment and provides multi-year grants to businesses that are majority owned by women or people of color. To date, the program has provided more than $60 million in grant dollars as well as marketing and technology services. 

In addition to the majority ownership requirement, business applicants must also meet the following: 

• Independently owned and operated (no franchises)
• Registered in the US
• Operating for at least 1 year
• Located within the Comcast Business or Effectv service area footprint

The annual deadline to apply is typically the middle of October, but it’s smart to check on any changes each year.

Grants.gov

Still wondering “How do I get a grant for a small business?” Good news: it’s possible to search for government opportunities via the federal website Grants.gov. You can search by a variety of filters including keywords or eligibility based on location, nonprofit or Native American tribal status, small businesses, and more. 

Grants could be made by the federal government or distributed to state and local government and agencies. While not every opportunity is directed specifically to women, there could be multiple grants available for all small business owners—including female owners. Plus, available grants are always changing, so you can always check back for new opportunities. 

Small Business Innovation Research and Small Business Technology Transfer Programs

The Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (SBTT) programs help businesses support federal research and development needs. While not designed specifically to support women entrepreneurs, both programs do encourage women and socially or economically disadvantaged individuals with innovation and research and development capabilities to apply.

There are more than 5,000 grants awarded each year, and basic eligibility criteria include:

• For-profit, US-owned and operated company
• Under 500 employees
• Funds must be used for research and development

Once awarded, funds from these programs may be used for the first 2 phases of development: first is the concept development phase, which lasts between 6 months and a year with amounts ranging from $50,000–250,000. Phase 2 is the prototype development stage, which lasts for 24 months. Funding amounts range from $500,000 to $1 million. (The third phase is commercialization—but funding cannot be used for this stage.)

What Can You Use Small Business Grants For?

Uses for small business grant funds depend on the requirements of the individual grant program. Oftentimes, the funds may be used for however you see fit as a business owner. However, federal research and development grant programs have strict requirements on how the funds may be used. 

No matter what grant program you apply for, here are some stipulations you may need to meet once you receive the grant funds.

Updates to the Grantor: Some grantmaking organizations may require you to provide updates based on your business progress, particularly if the funds are meant to be used in a specific way. 

Contingencies: You may also find grants that require contingencies to raise additional or matching funds on your own in order to receive the original grant funds. This is most common with state or local grants, although some private programs use grants as a kickoff to additional fundraising efforts. 

Federal and state restrictions: The strictest grant requirements come in the form of federal and state grants because they’re not designed to grow businesses. Instead, they are designed to achieve specific program goals.

Alternatives to Business Grants

There are a number of alternatives to business grants to help launch or grow a woman-owned business, particularly in the form of small business loans for women. Unlike grants, business loans must be repaid in full, including interest. Some may involve additional fees as well.  

The below options aren’t limited just to women, but you may find them particularly useful as a woman business owner:

Online business loans: An online business loan is ideal to apply for when you need cash quickly for your business. There typically aren’t restrictions on how you can use the funds. Loan terms range from 1–5 years and, depending on your business, can go as high as $2 million. Lenders review your credit score, time in business, collateral, and financial statements. 

SBA loans: SBA loans are backed by the federal government, although you still apply directly through a private lender. There are many different types of SBA loans depending on your needs. Two of the most popular options include:

• SBA 7(a) loans: These have a broad use, such as purchasing land, paying for construction, buying or expanding a business, refinancing debt, or operating expenses. 
• SBA 504 loans: These are used for buying property, like real estate, machinery, or land, or for renovating an existing property. 

Startup business loans: Startup business loans are used to help launch a business in its early stages. You may need some revenue under your belt in order to qualify–but it’s still possible for early companies to qualify. 

Both grants and small business loans can help you  fund your company’s next steps successfully—and Lendio can help pair you with the best business loan available for your company.

One of the hardest things for new business owners to understand is that their earnings and cash flow aren’t the same thing. Your business earns money every time it makes a new sale, but that doesn’t mean it has a positive cash flow.

Cash flow refers to the money coming in and out of your business, and it’s a good indicator of your company’s financial health. That's why a daily cash report, which tracks your cash flow, is ideal for helping you make better financial decisions for your business.

What Is a Daily Cash Report?

A daily cash report is a detailed report that outlines how much cash your business currently has on hand. It tracks how much money is coming in and out of your business, and the report is updated on a daily or weekly basis.

This report shows you how much cash you have on hand, not just today but over the next week or month. This makes it an excellent tool to help businesses with short-term financial planning, especially those with tight margins. 

A daily cash report tracks all aspects of the cash cycle, including your accounts receivables and payables. This information helps you make better financial decisions regarding your business.

How to Create a Daily Cash Report

Many people find it helpful to use a daily cash report template to get started. Once you’ve done that, here are five steps you can take to create your report. 

1. Choose your date range

The first step is to figure out how far you want to plan for and choose a date range. Do you need to know how much cash you have for the month, or are you just looking at the next week?

You can plan out as far in advance as you would like, but keep in mind your projections will be less accurate the further ahead you plan. And new businesses may need more data to create a cash report for the entire month. 

2. List your income

Next, you’ll list the income you have coming in over the coming days and weeks. This includes sales and non-sales revenue. For instance, you could include any tax refunds, grants, or investments.

Create a new column for each source of income and add them to the correct week or month. If you aren’t sure what your sales volume will be, you can use last year’s sales to make your projections.

3. List your cash outflows

Once you know how much income you can expect, you need to list any outgoing payments. Your cash outflows can include things like:

• Payroll
• Rent
• Tax bills
• Loan payments
• Materials

Once you have a list of everything going out of your account, you can add up your total. From there, you can subtract your outgoing cash from your incoming cash to see whether your cash flow is positive or negative. 

4. Adjust your plans accordingly

Hopefully, your daily cash report will show that you have a positive net cash flow and that this trend is improving over time. But what if you don’t have enough cash on hand to pay your bills?

Some people avoid looking at their finances because they’re afraid of this exact scenario occurring. But if you’re short on cash flow one week, it’s even more important to look at the numbers because this allows you to adjust your plans accordingly.

For instance, if you don’t have sufficient cash flow to make payroll, you may need to take out a loan to cover it. If this becomes an ongoing pattern, you may need to cut down on your expenses or the number of employees you have on staff.

5. Use the right tools

When you consistently create a daily cash report, you’ll start to notice trends in your business over time. You can do this with a spreadsheet, but it’s easier if you have the right tools to help you.
For instance, Lendio lets you track your expenses and view your real-time cash flow. You’ll receive alerts every time your business is approaching negative cash flow. And our in-depth reporting features will help you identify key trends in your business.

The Bottom Line

If your company consistently generates positive cash flow, this indicates that it’s in a good financial position. That’s why many investors and lenders require businesses to create a daily cash report. 

But most importantly, understanding your daily cash flow allows you to make more informed decisions about your business. If you need help creating a daily cash report, using a tool like Lendio can make this easier.

If you were in business when COVID-19 began, you may be eligible for the Employee Retention Credit (ERC). Introduced in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the ERC offers a payroll tax credit for wages and health insurance that were paid to employees during that time. 

Despite the fact that the Infrastructure Investment and Jobs Act of 2021 ended this program, qualifying businesses can still claim the ERC for up to five years retroactively. One of the most common questions about the ERC is whether it’s considered taxable income. Keep reading to find out.

What is the ERC?

First and foremost, let’s dive deeper into what the ERC actually is. Put simply, the ERC is a refundable payroll tax credit. It was designed to incentivize employers to keep their employees on payroll during the pandemic. As long as you’re an eligible business, you can receive as much as 50% up to $10,000 in qualified wages per employee or up to $5,000 per employee for 2020 and 70% of up to $10,000 in qualified wages per employee for each qualifying quarter (Q1-Q3) or up to $21,000 per employee total for 2021.

Is the ERC Taxable Income?

Now it’s time to discuss one of the most common ERC questions: Is the tax credit taxable income? The answer is yes and no. 

As a business who acts as an employer, the credit you receive from the government through the ERC is not included as gross income in your federal income taxes.

It does, however, reduce the amount of wages or salaries expenses you can claim as a deduction in your income tax return by the amount you qualified for through the ERC. This increases your taxable income by the amount of the credit for the time period you qualified for the ERC. Any changes made to your income tax return will be done retroactively. 

For example, if an employer paid $100,000 in wages in 2020 and received an ERC of $40,000, the employer would report an expense of $60,000 in wages on their business tax return rather than the full $100,000.

Difference Between a Tax and Refund

It’s important to understand that the ERC is not considered a tax. Instead, it’s a refundable tax credit for qualifying employee wages. For 2020, your business can lock in up to $5,000 per employee. The maximum credit per employee in 2021 is $21,000.

Since the ERC is a payroll tax credit not an income tax credit, you can still receive an ERC credit even if you paid no income tax in the year you qualified. Additionally, because the credit is refundable, you can receive a refund above and beyond what you originally paid in payroll taxes for the time periods you qualify for.

For example, if you qualify for a $30,000 ERC credit, but only paid $10,000 in payroll taxes, you would still receive the full amount of $30,000.

Am I Eligible for the ERC?

If your business faced partial or full shutdowns as a result of government orders during COVID-19, you may qualify for the ERC. 

To calculate the ERC, you’ll need to use the qualifying wages you pay your employees during their eligible employer status. Keep in mind that since ERC is a refundable tax credit you may receive a refund in excess of your original tax liability.

What Happens If I Never Applied for ERC?

You might be wondering what your options are if you never applied for the ERC. Since the ERC filing period has passed, you must file an amended return using Form 941-X to claim any credits you may be eligible for.

 Expiration dates for filing amended payroll tax forms for ERC are as follows: April 2024 for 2020 941 payroll tax filings and April 2025 for 2021 941 payroll tax filings. Rest assured, if you didn’t apply for the ERC, you can still do so. Simply amend the return for every quarter in 2020 and 2021 where you meet the criteria for ERC. It’s in your best interest to reach out to a tax professional to help you out. They can help you avoid a denial or delay.

Bottom Line

The ERC is a valuable tax credit you may claim for keeping your employees on your payroll during the COVID-19 pandemic. While it’s not included in gross income for employees, it is subject to expense disallowance rules. Therefore, your wage deduction as an employer will be reduced by your ERC amount which could result in taxable income. If the business wasn't profitable even after the change it would not cause an increased tax burden.

As a business owner, it’s important to use financial forecasting tools to develop a plan for your company. These tools can help you determine whether your business is headed in the right direction and see how your results vary from your expectations.

Two financial strategies you can use are budgeting and budget forecasting. While there are some similarities between the two, they aren’t the same thing. Let’s look at how budget forecasting works and how you can set one up for your business.

What is Budget Forecasting?

Budget forecasting is a confusing term for many people because it combines multiple financial tools. It is essentially a combination of a budget and a financial forecast—it uses a budget to create a plan for the upcoming fiscal year using historical business data. 

What is a Budget?

A budget is a spending plan for your business based on your projected income, expenses, and cash flow for the upcoming year. A budget helps you understand how much money you have and how much you’ve spent. 

A budget can help you make important financial decisions in your business, like whether you need to cut your expenses or have the funds to buy new equipment. And a detailed budget can make it easier to obtain a loan from a bank or financial institution. 

Your business budget should include the following components:

• Estimated revenue: The estimated revenue is the amount of money you expect to bring in from the sale of your products or services. The easiest way to figure out your estimated revenue is by multiplying the expected number of sales by the average sales price. 
• Expenses: Your budget should also account for any expenses in your business. Spend some time thinking about the fixed and variable costs your business typically incurs throughout the year. It’s also important to account for the occasional one-time expenses, like replacing equipment.
• Cash flow: The cash flow is the amount of money being transferred in and out of your business. You want to track your cash inflow and cash outflow, as this will affect liquidity.
• Profit: Your profit is the amount of money your business gets to keep after all its expenses are paid. If the profit is increasing year over year, that means your business is growing. 

What is a Forecast?

A financial forecast is a high-level projection of expected business outcomes based on existing data. A comprehensive forecast looks beyond the factors directly impacting your business and considers other factors as well, like social and economic influences.

A budget is typically a short-term projection, but a financial forecast can be used for short-term and long-term projections. It typically includes the following information:

• The current and expected revenue
• Information about fixed, variable, and one-off expenses
• A financial projection of the company’s expected growth

Budget vs. Budget Forecasting: What’s the Difference?

There are similarities between a budget and budget forecasting, but they aren’t the same. A budget outlines the direction a company would like to go, while a budget forecast shows whether the business is actually headed in that direction. 

And while a budget is typically done once a year, a budget forecast is updated monthly or quarterly. And unlike a budget, budget forecasting doesn’t account for any variance between the budget and actual performance. 

The most significant difference between these two strategies is that a budget is typically created to help a business meet a goal. It’s a static financial document that outlines a company’s projections for the upcoming year.

In comparison, a budget forecast aims to predict the outcome of a budget. It’s adjustable and can change over time as your business’ needs and expectations change.

How to Make a Budget Forecast

A budget forecast predicts the expected outcome of a budget for the upcoming fiscal year. It uses past sales data to create a short-term estimate of the company’s financial goals. Let’s look at the steps you can take to create a budget forecast for your business. 

Gather Your Company’s Data

The first step is to gather your company’s past and current financial data. List out any information about the sales revenue and expense history. Once this information is listed out in a formal document, you’ll have a better idea of what your future earnings and expenses will be. 

Decide on the Time Frame

Next, you need to determine the time frame you’re looking to measure. For instance, do you want to review the budget forecast monthly, quarterly, or annually? 

Set Your Expected Revenue

Once you have a good understanding of your company’s financial data, you can project your expected revenue for the coming year. It’s a good idea to underestimate your revenue expectations and set this as your baseline goal. Don’t forget to include any additional streams of income, like investments or stock shares.

Project Your Expenses

Now you’re going to project your fixed, variable, and one-off expenses for the coming fiscal year. This can include things like operating expenses, cost of goods sold, and loan payments. It’s a good idea to overestimate your expenses—look at your average spending over the past few years and set your budget forecast based on the higher end of those averages.

Conclusion

A budget forecast is a valuable tool that businesses can use to set financial expectations for the coming year. But creating a budget forecast can be challenging, and it requires that you have a solid understanding of your company’s data.

If your historical data is inaccurate, your budget forecast will be wrong as well. That’s why it’s a good idea to use forecasting software to develop your budget forecast. 

The right forecasting software will make it easier to track your cash flow, understand where your money is going, and identify trends in your business. That way, you’ll always understand how your business is performing and what you should focus on.

Forecasting involves making educated projections about a company’s future performance. It’s an essential aspect of financial planning for small business owners that's often used to inform business decisions and a key request from many lenders during the loan application process.

However, there are many different forecasting methods, and their effectiveness depends significantly on your circumstances, such as your business model, industry, and growth stage.

Here’s what you should know about the most popular forecasting techniques to decide which ones are most suitable for your current situation and incorporate them into your financial planning.

5 Types of Forecasting Methods

Quantitative Methods

Quantitative forecasting methods generally use historical data and mathematical formulas to make predictions. As a result, they produce clearly defined projections and are usually the preferred option when available.

Let’s explore some of the most popular quantitative forecast techniques, how they work, and when they’re a good idea.

Straight-Line Method

The straight-line method of forecasting is the simplest way to make financial forecasts. It assumes that a company’s historical growth rate will remain consistent and uses it to estimate future results.

It’s often most useful when performing revenue forecasting on mature companies that have experienced steady sales growth for years and expect it to continue.

Conversely, it’s much less practical for companies in the early stages of development. They often experience significant volatility, and their future performance won't correlate much with their previous results.

The method’s lack of complexity makes it easy to make quick, rough estimates. However, it’s rarely the most accurate option since businesses never grow at the same rate indefinitely.

However, you can use different historical data ranges to calculate your growth rate and improve the method’s accuracy. For example, say you have the following sales data for your small business and want to project your sales in 2022.

• 2017: $37,000
• 2018: $68,000
• 2019: $112,000
• 2020: $118,000
• 2021: $125,000

You know your revenue grew significantly in the first few years as you gained traction. However, your growth stabilized in 2019, and you expect it to progress at a similar rate in the future.

Therefore, you use your average growth rate from 2019 to 2021 to project your sales for 2022. Your formulas would be:

([(118,000 - 112,000)/118,000] + [(125,000 - 118,000)/125000]) ÷ 2 = 5.3% average growth rate

$125,000 x 105.3% = $131,625 in sales in 2022

Weighted Moving Average Method

The weighted moving average forecasting method is similar to the straight-line approach, using historical data to estimate the future. It involves calculating a weighted average of previous data points to predict the next entry in the sequence.

The technique has a smoothing effect that can help account for trends and seasonals, making it most effective for repeated, short-term projections. Businesses often use it to estimate the next month’s revenue, cash flow, or expenses.

Once again, you can manipulate the formula to emphasize the impact of certain data points if you think it’ll improve the accuracy of your projections. For example, say you have the following net cash flow over the last 5 months:

• January: $2,600
• February: $2,750
• March: $2,700
• April: $2,900
• May: $3,075

You use the weighted average method to perform your cash flow forecasting for June. You believe it’s likely to be most similar to more recent months, so your formula looks like the following:

($2,600 x 10%) + ($2,750 x 15%) + ($2,700 x 20%) + ($2,900 x 25%) + ($3,075 x 30%) = $2,860

To estimate your cash flow for July, you’d repeat the same formula using the months of February through June. You could continue the process for future months, but your forecasts would become increasingly inaccurate the more they rely on projected data.

Linear Regression Method

Linear regression can be a more sophisticated way of creating quantitative forecasts. It relies on the relationship between one or more independent variables and a dependent variable to predict the latter.

As a result, it’s generally most accurate when there is a strong correlation between multiple activities you control and the financial account you want to predict.

However, multiple linear regression is slightly beyond the scope of this article, so here’s an example with a single independent variable.

Say you sell lawn mowing services and exclusively use cold calling to generate leads. You believe it’s the primary driver of your monthly revenue, so you use a simple linear regression model on last year’s data to project your next month’s earnings.

The average correlation between the two variables indicates that cold calling 1,010 times per month should generate roughly $5,055 in monthly revenue. You can use that knowledge to project your earnings for future months.

For instance, you plan to make 950 cold calls in the following January and estimate that you’ll earn roughly $4,755 using the following formulas:

1,010 ÷ $5,055 = $0.1998

950 ÷ $0.1998 = $4,755 in sales

Qualitative Methods

Because quantitative forecasts involve the manipulation of historical data, they’re generally the most objective method of making forecasts. However, that data isn’t always accurate or available, especially for new businesses.

In these scenarios, qualitative forecasting methods become more valuable. Here are some of the most popular approaches.

Delphi Method

The Delphi method is one of the most effective types of qualitative forecasting, but it’s also one of the most challenging to execute. It requires gathering a panel of experts to analyze your business and the market to predict your company’s performance.

You’ll also need a facilitator to manage the process. They'll provide questionnaires to the experts, who remain anonymous, then share summaries of everyone’s aggregated responses with the group.

They'll repeat the process multiple times, allowing the experts to change their answers freely in subsequent rounds until they reach a consensus. Ideally, the arrangement eliminates the bias and conflict that such groups often experience.

Market Research Method

The market research method is one of the most straightforward and flexible forms of qualitative forecasting. There are many ways to conduct the technique, which essentially involves gathering information about your target market to inform your projections.

For example, that might include sending out surveys to consumers about their purchasing habits, analyzing your competitors' marketing tactics, or studying the overall economic conditions that might affect demand for your product.

While market research is essential for new businesses that don’t have much historical data to rely on, small business owners may also use it to formulate assumptions and supplement their quantitative forecasts.

How to Choose Forecasting Methods

Every forecasting method's effectiveness depends on the circumstances, and choosing the right ones requires critical analysis. There’s rarely a perfect choice—just those you deem likely to produce the most accurate results.

Some of the most important factors to consider when selecting your forecasting methods include:

• Availability and accuracy of historical data
• Time and capital you have to devote to forecasting
• Level of seasonality that your business experiences
• Your current growth stage and growth rate
• Time horizon over which you’re looking to forecast

For example, the owner of an 8-month-old startup has begun to see some traction and wants to project his sales over the next 3 months.

He rules out the straight-line and weighted-average methods because he lacks data and the company is growing in leaps and bounds. He wants to supplement his quantitative forecasts with qualitative techniques, but the Delphi method is too costly. 

As a result, he ultimately decides to use a combination of market research and linear regression to make projections for his gross revenue over the next quarter, which he believes currently correlates strongly with his Google ads investment.

Don’t be afraid to experiment with multiple forecasting methods as your business grows. It takes practice to determine which techniques work best for you and to develop the skills necessary to execute them effectively.

Use Forecasting Software

Business analysts have traditionally used spreadsheets to build their financial models and complete forecasting techniques. While spreadsheets can be an effective tool, using them is time-consuming and leaves you highly vulnerable to human error.

Forecasting software is much more efficient and minimizes the risk of mistakes. Fortunately, Lendio offers a forecasting tool that integrates seamlessly with our free bookkeeping tools, making it perfect for small businesses. Sign up for an account today!

Cash flow analysis is essential for effective business management. It helps you recognize opportunities to improve profitability, anticipate periods of low cash inflows, and use your funds strategically when they’re limited.

Conversely, ignoring your cash flows can lead to significant liquidity problems, one of the leading contributors to business failure.

Here’s what you should know about performing cash flow analysis to optimize your business decision-making and avoid working capital issues.

What is Cash Flow Analysis?

A business’s cash flow refers to its capital receipts and disbursements during a given period. In addition to the cash earned and spent in day-to-day operations, it includes funds gained and lost through investing and financing activities.

As a result, cash flows are distinct from revenues and expenses, especially for businesses using the accrual accounting basis. For example, you could close a deal on net 30 terms and generate sales, but not receive any cash for weeks.

Cash flow analysis requires that you organize the inflows and outflows from your business activities into a statement of cash flows—one of the three primary financial statements—along with the income statement and balance sheet.

Next, it involves applying analytical techniques to the assembled data to extract beneficial insight, such as seasonal cash flow trends, opportunities to reduce expenses, or signs you need additional financing.

For example, variance analysis is a technique that involves creating an estimated cash spending budget for an upcoming period, then comparing it to your actual results.

That helps highlight aspects of your operation where costs were significantly different than you expected, giving you the chance to address the issues or refine your cash flow forecasting.

How to Do Cash Flow Analysis

Cash flow analysis is complex and encompasses several distinct processes. Here’s a step-by-step guide to give you a general framework for how it works.

1. Identify All Inflows and Outflows

The first step to analyzing your cash flows is to track them. If you already have an income statement and balance sheet, you can use them to back into your inflows and outflows. Otherwise, you can pull the information from your bank statements.

The cash flow statement generally separates these activities into the following groups:

• Operating activities: These include the cash inflows you generate by selling your products or services and the cash outflows you incur as operating expenses.
• Investing activities: Investing cash outflows include the purchase of investments like fixed assets and securities. Meanwhile, investing inflows refer to any returns they generate and the proceeds you get from selling them.
• Financing activities: These refer to the cash flows associated with your debt and equity financing. The proceeds you receive are inflows, while repayment activities are financing outflows.

Every business has a unique combination of cash activities, so you may not have some that fall into every category. After all, some small businesses go without external financing or choose not to invest their excess capital.

2. Create a Statement of Cash Flows

Once you’ve identified all your cash activities for the period you want to analyze, you’ll need to organize them into a statement of cash flows. You can create the financial statement using the direct or indirect method.

The direct method of calculating cash flows is straightforward, but it’s often labor-intensive. It involves adding up all your cash inflows and subtracting all your cash outflows from them, using raw transactional data from bank statements.

The indirect method of calculating cash flows can be more complex, but it’s usually more efficient if you have a finalized income statement and balance sheet.

Generally, it involves backing into your cash flows by removing accruals and non-cash activities from the other financial statements. For example, you’d need to reverse any accounts receivable, accrued revenues, and depreciation.

3. Investigate Your Statement of Cash Flows

Whether you use the direct or indirect method, you should end up with the same statement of cash flows. With it, you can finally begin your cash flow analysis. Here are some sample techniques to give you an idea of how it works:

• Calculate your cash runway: Your cash runway is the length of time you can support your current cash flow, usually expressed in months. It’s highly relevant to new startups losing money and trying to gain traction and equals your cash reserves divided by monthly net cash flows, assuming they’re negative.
• Check cash flow ratios: Ratios can help you assess solvency, liquidity, and profitability. For example, the cash flow coverage ratio tells you if your operating cash flows are enough to afford your debt payments. If it’s greater than one, your default risk is low. It equals net operating cash flows divided by total liabilities. 

There are countless ways to extrapolate information using your statement of cash flows. Which techniques are relevant to you depends on your goals, business model, and current stage of growth.

If nothing else, you can use it to determine whether your company is generating sufficiently high net cash flows over a given period. Without it, that’s not always obvious to businesses using the accrual method of accounting. 

4. Use Insights to Inform Business Decisions

Cash flow analysis is only beneficial if you use the insight you gain to make better business decisions. As a result, you should monitor your statement of cash flows and review it before making significant decisions.

For example, businesses often benefit from ongoing financial forecasting. It involves creating projected financial statements, including the statement of cash flows, using historical data.

Updating these projections at the end of each calendar year helps you develop benchmarks and predict potential cash flow shortfalls. If you foresee that you’ll need additional working capital, you can start looking for financing.

Of course, you should examine your statement of cash flows further before accepting a credit offer to confirm you have enough cash flow to make your monthly payments.

Cash Flow Analysis Example

Let’s walk through an example to help you understand how cash flow analysis looks in practice. For the sake of simplicity, we’ll use the direct method to construct a manageable statement of cash flows.

Say you’re a small business owner in the construction industry and primarily take on landscaping projects. In January of your third business year, you have the following cash transactions:

• January 3: $500 rent expense for landscaping equipment
• January 7: $5,000 cash receipt as payment for an invoice
• January 10: $200 payment toward an outstanding business loan
• January 16: $1,250 payment to subcontractor
• January 27: $50 gas expense to refill the company truck
• January 30: $3,250 cash receipt as payment for a second invoice
• January 31: $120 dividend payout from invested securities

Fortunately, you’ve been performing cash flow statement analysis for several years. As a result, you recognize that your net operating cash flows are 20% higher than in January of the previous year.

In addition, you notice that your cash reserves have grown steadily along with your operating cash flows. This month, you’ll have $10,000 left after setting cash aside for taxes and personal expenses.

You like to keep enough cash to support four months of cash outflows without income. Since your total cash outflows in January are $2,000, you realize you don’t need more than $8,000 in cash reserves.

Based on your cash flow analysis, you use your excess funds to invest in a $2,000 commercial-grade lawn mower. It saves you $200 monthly in equipment rent, improving your operating cash flow.

Leverage Software for Cash Flow Analysis

Cash flow analysis is an essential part of financial planning for small businesses. However, building your cash flow statements in clunky spreadsheets is time-consuming, labor-intensive, and prone to human error.

Fortunately, you can manage your cash like a pro with Lendio’s cash flow forecasting software. It can track your activities in real-time, automatically generate cash flow statements, and provide personalized cash flow insights. Sign up for a free trial today!

Running a business is difficult, and the COVID-19 pandemic didn’t make it any easier for businesses worldwide. To mitigate damage to businesses as a result of the pandemic, the U.S. Congress, fortunately, passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. One key component of the CARES Act is the Employee Retention Credit (ERC). While many small business owners have acted to take advantage of the ERC to reduce their taxes owed or receive a much-needed tax refund, however, many are unaware that a portion of the ERC can be non-refundable.

To help you better understand and accurately anticipate how the ERC could benefit your business’ bottom line, let’s discuss how the ERC works and which portions are non-refundable.

The Employee Retention Credit

To incentivize companies to keep employees on the payroll during the coronavirus, the ERC allowed companies to take a 70% tax credit for up to $10,000 of an employee’s qualifying wages in each quarter of the first three quarters of 2021. Companies which started after February 15, 2020 and made less than $1,000,000 in gross receipts could also qualify for $7,000 in the fourth quarter of 2021. Companies could also take up to $5,000 in credit for the 2020 year. 

The credit reduces a business’s total owed taxes. It does not lower its taxable income like a deductible. 

The ERC was focused on more small businesses with fewer than 500 employees in 2021 or less than 100 employees in 2020. However, any business can qualify if the business meets the required criteria for the ERC. Find out more about the ERC and if you qualify. Companies can only qualify for the credit if they were subject to a lockdown or a significant loss of revenue. 

In 2021, the ERC was also amended to help startup businesses, too. “Recovery Startup Businesses” are companies that were started after February 15, 2020, and had less than $1 million in revenue. Recovery startup businesses can apply for the ERC for Q3 and Q4 of 2021 and receive up to $50,000 in ERC per quarter. 

What is the Non-Refundable Portion of the ERC?

It really comes down to some confusing definitions. 

Most people think of a refund as money they’re getting back that they already paid. But in the case of the refundable portion of the ERC, if you qualify for the tax credit, you will most likely be getting more money back than you initially paid in payroll taxes. 

That’s because the refundable portion of the ERC is meant to offset your total payroll expenses and is calculated on qualifying wages minus any remaining social security or medicare tax liability, depending on the quarter.

In IRS speak, the term “non-refundable” means that the amount cannot be used to increase a business’s refund or create a refund that wasn’t there prior. Most tax credits are nonrefundable.

With the nonrefundable portion of the ERC, you are credited up to, but not more than, the amount you paid in social security or medicare taxes for each qualifying quarter.

When your ERC is being calculated, your total tax credit will be a combination of these two portions. 

How to Claim the ERC on Form 941-X

If you qualify for the ERC, but did not use the credit in previous filings and overpaid your taxes, you will need to amend your quarterly filings with Form 941-X. 

Form 941-X requires a bit of information, including when you discovered the error (or in this case, when you discovered you qualified for the ERC), the monetary amount, and why you believe the mistake happened. Since the form can have some complicated pieces, it is best to work with someone with expertise in ERC. 

If you’re filing a Form 941-X, you have 3 years from the initial filing to amend your taxes. 

Can I Still Qualify for the ERC? 

Good news! Businesses can still qualify and apply for the ERC. The Employee Retention Credit officially ended on September 30, 2021, but businesses have 3 years from that date to look back at taxes and apply for the ERC. 

Even if your business received other assistance from a Paycheck Protection Program (PPP) loan, you might still qualify for the ERC.

Get Started on Your ERC

The ERC is a great benefit for businesses affected by the pandemic. If your business kept your team employed during the pandemic and you were affected by a lockdown or a drop in revenue, you may be eligible for the ERC. The non-refundable part of the ERC is based on the Social Security Tax of the employees. However, if you amend a previous Form 940, the Social Security Taxes may have already been paid, and the non-refundable portion is already settled. 

Filing for or amending an Employer’s Quarterly Federal Tax Return to get the ERC can be a bit daunting for business owners. Working with a team who understands the ERC and how to file correctly will help streamline the process. 

Opening your dental practice is exciting, but it comes with a significant increase in accounting responsibilities. Most dentists prefer to focus on client work rather than business management, but you can’t afford to neglect the function.

Here’s what you should know about dentist accounting to stay on top of your financial obligations, including what it involves, the most common mistakes to avoid, and some best practices that can help your system run smoothly.

What Is Dental Practice Accounting?

Dental schools are great at teaching prospective dentists how to care for their patients' oral health. However, they don’t share the knowledge dentists need to be effective small business owners.

When you open your dental practice, you become responsible for your dental practice accounting. That refers to everything necessary to keep your finances organized, make intelligent business decisions, and comply with tax laws.

More specifically, dental practice accounting involves:

• Maintaining records of your day-to-day transactions
• Turning bookkeeping data into accurate financial statements and reports
• Paying your calculated tax obligations and filing tax returns to stay in compliance
• Analyzing your financial statements to inform business decisions and tax strategies

The unique aspects of running a dental practice can complicate these processes. For example, accounting for your revenues properly despite the complexities of insurance billing can be one of the most significant challenges.

Even if you switch to a fee-for-service model, multiple moving parts in the dental payment process can quickly lead to messy financial records.

Problems can also arise when a dental practice owner plans to sell their business at the end of their career. While that’s a long-term financial goal, it creates many accounting challenges regarding practice valuation and retirement planning.

Best Practices For Dentist Accounting

Not only do busy dentists enjoy reducing their time doing accounting, but focusing on your craft is in your business's best interest. Maximizing the hours you spend on your core competency is highly beneficial to your profitability.

Here are some best practices you should follow to minimize the interference of your dental accounting responsibilities in your day-to-day working life.

Invest In Cloud-Based Software

Bookkeeping can be one of the most time-consuming aspects of small business accounting when you do things by hand. Fortunately, modern cloud-based software has made that entirely unnecessary.

Nowadays, all dental professionals should connect their business bank accounts and credit cards to solutions that can track their transactions and generate financial statements.

Fortunately, you can automate those functions with accounting software.

Of course, software can make many other aspects of your finances more efficient. For example, dental practice management and payroll service software are essential tools for many dentists.

Ideally, you want to create a tech stack that integrates seamlessly. While this can be costly, consider treating it as an investment, just like your practice’s equipment.

Optimize Your Legal Entity Structure 

Business owners have multiple legal entity options, including sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. In some industries, all of them are viable, but that’s usually not the case for dentists. 

That’s because litigation is one of the most significant risks in the healthcare industry, and you can’t afford to leave yourself exposed. As a result, dentists generally must choose from corporate and LLC structures.

However, even those options have vastly different impacts on your taxes and accounting, and there’s no one-size-fits-all answer regarding the best choice. As a result, it’s a good idea to consult a tax or legal expert to help you make this decision.

Consider Your Billing Structure Carefully

Dental practices have multiple options when it comes to determining their billing structures, and they have a significant effect on your overall business strategy and accounting processes.

First, dental practices can go with the traditional route of being a participating provider. That means you’re in-network with a dental benefit plan and usually involves collecting payments from insurance companies and patients.

Generally, this favors a quantity-over-quality approach. Dentists accept the lower prices insurance companies set for their services in exchange for the consistency of capitation payments and increased patient volume due to insurance referrals.

Alternatively, dentists can switch to a fee-for-service approach, which involves setting your prices for services and collecting payment in full from patients upfront. You or the patient can still submit a claim to their insurer for reimbursement if there is one.

Typically, choosing the fee-for-service approach implies a shift to a quality-over-quantity strategy. You’ll likely have fewer patients, but your profit margins for each one should increase.

Your billing strategy is another hugely impactful decision you’ll need to make before you start doing business, and it’s best to ask an expert for help with all of the implications for your financial management and tax reduction planning.

Delegate As Much As Possible

Providing care to your dental patients is a full-time job, and every additional hour you can dedicate to your core competency increases the efficiency and profitability of your business.

As a result, dentists benefit more than most from delegating their financial responsibilities. It’s often worth paying for help with your bookkeeping processes and the more complex dental accounting services. 

In many cases, it makes sense to bring the bookkeeping process in-house. It’s usually straightforward enough to have one staff member handle it with other administrative tasks like scheduling.

However, few practices need to hire a full-time dental accountant for their financial planning. Instead, you’re often better off paying for outsourced accounting and tax services from a Certified Public Accountant (CPA) firm.

They can provide all the dental practice accounting services you need at a much lower cost, including strategic tax planning, new business advisory, and tax preparation.

Just be sure you choose one who's had clients like you before, so they understand the nuances of accounting service for the dental industry.

Common Mistakes

Because dental education doesn’t prioritize financial management, it’s easy for new practice owners to make unforced errors. Fortunately, many of them are easily avoidable when you know about them in advance.

To help you set yourself up for success, here are some common pitfalls dentists fall into that you should know to avoid.

Failing To Separate Business Activities

Failing to open a separate business bank account for your practice’s transactions is one of the most common ways dentists cause accounting problems for themselves. It makes it surprisingly difficult to distinguish which activities belong in which category later.

Many businesses recognize this issue after their first few months or year of operations, but the damage is done by then. To avoid unnecessary accounting work, open separate business accounts before transitioning to practice ownership. 

Neglecting Financial Analysis

Dentists are rarely excited by the prospect of financial concerns interfering with their craft, but you can’t afford to ignore that aspect of your responsibilities. Dental practices are businesses, so you must understand the monetary aspects to run them well.

That means you should take the time to explore your financial statements and look for ways to improve your profitability, cash flows, or operational efficiency.

For example, debt is one of the primary budgetary challenges for dental practice owners. Not only do dentists carry sizable student loans, but they also usually have to take out business loans to afford the equipment they need.

As a result, you’ll likely have high fixed costs, and you must be careful to avoid cash flow issues.

Choosing A Generalist Accounting Advisor

Every business is subject to the same fundamental accounting principles, but their applications vary significantly due to the nuances of each industry. As a result, choosing a generalist accounting advisor is often a mistake for dentists.

When shopping for a dental CPA firm, review their accountant websites carefully and take advantage of free consultation options. Make sure you choose one with extensive dental business consulting.

They'll need it to help you navigate the unique aspects of dentist accounting, like dental insurance and selling your practice.

*The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.