I am sure that sometime in your life someone has told you that “Cash is King”. Well, I will expand on that and say that cash flow is the lifeblood that keeps the heart of the business pumping.
It may be the most important survival factor for every small business. In fact, it may be fair to say that even some businesses that look like they are making progress, end up in bankruptcy, simply because the cash coming into the business does not equal the amount of cash going out.
So how do you avoid cash flow crunch in your small business?
Here are 5 killer solutions to help you avoid these issues.
Yes, I know that this requires you to look into the future, but it works. Look ahead and make a plan. For example, if your monthly business expenses total $5000, then to cover the next 12 months you need a minimum of $60000 before you make a surplus. How do you plan to do that? A cash flow forecast allows you to have a serious look at the financial situation of your business.
The bare facts are that in the early stages of your business, you need to be everything from head chef to bottle washer so to speak. This requires you to stretch yourself into unknown waters, like sending invoices and becoming a master at money collections.
I was recently sitting in my mechanic’s waiting room as my brakes were being replaced. This is a small local shop, so you can hear everything that goes on.
I actually overheard him calling customers who had gone 60 days past due. When he had ended his call, I explained that I was writing an article on invoicing and collections.
He said that the biggest lesson he had to learn, was the fact that some people just don’t pay on time, and that 30 days turns into 60 and 90 very quickly. That is why he was on the phone calling people – because he needed that money to pay his bills.
So, here are some tips to make this part of your business work for you, or you will be spending time on the phone as well.
Only allow credit when you absolutely have to.
And, if you absolutely must allow credit, have a system to credit check the customer, before you give them credit.
Then make sure that all your invoices give clear reference to your credit terms as well as the different forms of payment you accept.
Have a system for follow-up and enforce it.
Most self-employed small business owners have a financial backer, be it a bank, a friend or relative.
Stay on good terms with these people because there may come a time when you may need to rely on them again. We do not encourage borrowing money, but sometimes you need that extra amount to get you through a cash flow crunch.
Keep them abreast of your business and keep your backers on your side.
When the going gets tough, be brutal and take a look at every expense that you have.
You may have progressed in your business to the point where you have added expenses to your ledger sheet that can be eliminated in stressful times.
Go through every expense (including the coffee truck that arrives every day).
Remember the old saying that “if you look after the pennies, the dollars will look after themselves.”
No excuse for this one as it is one of the biggest causes of small business failure.
Just imagine if the government failed to keep financial records, or Microsoft, or Ford or any big company out there.
This also goes for small business.
As a small business owner, you can really get into trouble from a cash flow perspective, if you don’t understand where you are financially almost every minute of the day.
This may take you extra hours, and a new learning curve if you use a software accounting package, but to manage cash flow you need to be on top of every dollar that comes into your business, and every dollar that leaves your business.
Many owners are afraid of the truth and fail to look at their business finances. Good cash flow management requires you to be courageous and on top of all your business transactions.
Well, there are 5 great tips on how to stay on top of your business cash flow. They may seem like common sense to you, but history will tell you that poor cash flow management spells nothing but disaster for the small business owner who does not make cash flow a priority issue in their business.
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Ed Carey, AMG, LLC