Cash flow management is key to the success of your business. The business revenue on paper doesn’t always correspond to the real-world funds you have in the bank. For many different reasons, your business can find itself temporarily short of cash when things need paying.
Cash flow refers to the money coming in and going out of your business and it is common for the two to not align. In many cases, this is a temporary problem but one that can cause long-lasting and long-term issues for the success of a small business.
But there are several ways that you can prepare your business for this eventuality with some simple cash flow management preparation. These can work with or without a full-time accountant and help you stay on top of your business finances. Consider these tips to help manage your small business cash flow:
Use accounting software to keep on top of cash flow
Many great online accounting software solutions on the market will help you generate reports, reconcile accounts and perform other simple accounting actions that will give you all you need to understand your finances. Look at paid-for software such as Quickbooks Online and Sage, or look at Wave which is a great free online accounting software, with some limitations but most of the functions of the paid solutions.
Regularly appraise business costs and see where they can be reduced
How many monthly, quarterly or yearly payments do you have going out that you don’t pay attention to? Do you still pay for services and subscriptions that you are not really using? Can you renegotiate terms on loans or leases? On a larger scale, do you need that much office space and such a large staff base? Regularly appraising your business costs could be the key to unlocking more working capital.
Invoice quickly and keep on top of invoicing
Make sure you invoice as soon as work is complete and keep on top of what is owed so you can send reminders on any late payments. Good accounting software will alert you when invoices become overdue and offer simple ways to send clients a nudge to pay.
Lease don’t buy your business equipment
You can keep the latest upgrades coming into your business and avoid tying cash by leasing computers, vehicles and other business equipment. Doing this you can still expense the cost of leasing equipment on your business taxes. There are several asset finance options out there to help you lease the right equipment with the right deal.
Ask for deposits on big sales and projects
On projects that will take a long time to deliver and a lot of resources can put a strain on cash flow. Have a deposit (it is common to charge 10%) as part of your terms and conditions and don’t start work until that has been received, this can help offset the costs.
Set up a line of business credit for emergencies
One good insurance policy against potential cash flow problems would be to have a line of business credit set up. You might be able to use inventory as collateral or get credit based on a percentage of your planned income.
Offer deals for full upfront payment
By offering a small reduction in overall price to clients who pay the whole bill upfront you can keep your working capital in the positive. If you work this discount into your costings there is no need to lose out on cash with the tactic.
Of course, there are situations that no amount of planning can prepare a business for and if the worst-case scenario does hit your business cash flow you can explore a wide range of working capital finance and bridging finance options available on the market to help tide your business over.
But following the simple cash flow management tips above you give your small business the best chance of never facing difficult cash flow issues.