A Few Simple Ways To Improve Cash Flow
Without a steady flow of cash to cover expenses, your business can quickly stumble. Cash flow troubles can develop even when sales seem strong. Facing a continuous cash crunch makes it difficult to conduct your business properly. And while it may be tempting to seek out complicated forecasting financial formulas for predicting and tracking business cash flow, the basics tend to be plain everyday common sense for most small businesses.
The object is to make certain that more cash enters your business than exits your bank account.
First you need to translate sales into real money as quickly as possible. Once you’ve collected the cash, your business needs to protect it. Surprises, such as slow or non-paying customers and unexpected expenses, are your worst cash flow enemies.
One way to shift cash your way is to ask for all or a portion of payment up front. Asking for at least a deposit in advance is a great way to jump-start your cash flow. And if you establish the policy fairly and properly, it shouldnt chase away good customers.
Accepting credit card payments also can help, so you may want to sign up for a merchant account (offered by your bank) that allows you to do this. Or, if you already have one, encourage customers to use this option more often. You will pay a fee for this. But credit cards are a great way to speed cash into your account, and the cost is generally small.
You may need to manage your “receivables.” This is the money that customers owe to you for products or services you’ve delivered.
Create a detailed “aging” schedule of what you are owed, by whom and for how long. Place phone calls to overdue accounts, focusing first on the largest amounts due.
Offering a discount can bring some quick cash in the door, but play this card only after you’ve called the customer to ask for full payment.
Finally, don’t overlook the power of an operating budget. Note specific due dates for payables as well as receivables. Although the balance between the two won’t always be predictable, the budget can give you a snapshot of where your business stands cash flow wise.
Outside partnerships are critical components of success. Use your banker and accountant for useful advice. Combined, these are but two excellent resources/ partnerships.
Cash flow is just one critical financial issue facing your small business. To learn more, contact SCORE, “Counselors to America’s Small Business.”
SCORE is a nonprofit organization of more than 10,500 volunteer business counselors who provide free, confidential business counseling and training workshops to small business owners. Call 1-800-634-0245 for the SCORE chapter nearest you, or find a SCORE counselor online.