As a small business owner, you are probably more than aware of the importance of cash flow. It is the mainstay of your business. When you have a positive cash flow, you can continue to run and grow your business. However, a negative cash flow is pretty bad news. It means that somewhere, something isn’t working and you may have to find other ways of covering your costs.
So what do you do if your cash isn’t flowing quite as smoothly as you would want it to? How can you deal with the immediate situation and improve it going forward? Of course, over the longer term you can do things like look at cost segregation services by tax professionals to accelerate your tax deductions, but what about the short-term? Here, we look at some ways that you can manage your cash flow as a small business, and turn it from negative into positive.
1. Stay on top of your invoices
Your sales are the lifeblood of your business, and the payment of invoices can be the making or breaking of your cash flow. If you don’t send them, you don’t get paid – it really is as simple as that.
Staying on top of your invoices is crucial. The faster you send your invoices out, the faster the cash comes in. Take a look at your current invoicing process; if it seems tedious and long-winded, look at changing it. These days there are plenty of software options to choose from to make creating, sending and the payment of invoices incredibly simple.
You can also encourage faster payment of invoices by offering incentives to your customers to pay on time or even upfront – offering perhaps a small discount if they pay within the first week of receiving their invoice. They are much more likely to pay early on time.
If a customer is dragging their feet when it comes to paying, send them a reminder before the last payment date passes. For example, if you have a thirty day payment term, send them an email seven days beforehand to remind them that they have one week left to pay.
If they do not pay by the final payment date, it is time to get tough. Make sure that on your invoice you clearly lay out the penalties that they will face should they not make payment on time. Usually, this involves a percentage of the invoice value on top, but do your research and find out what the industry standard is. The key is making it clear on your invoice.
2. Expand your sales market
One of the most obvious ways to improve your cash flow situation is to expand your sales market. The more that you can sell to more people, the more money will come your way.
Think about the sales and services that you offer to your customers and consider whether there is anything that you can add to it. If you run a coffee shop, maybe you could look at opening on one or two evenings a week and offering alcohol, for example. Maybe you have a big hall or courtyard on your premises that you could rent out to local groups or for parties and events on the weekend. Think outside the box a little bit – sometimes the most creative ideas can be the most profitable!
If you can’t expand your product or service offerings, look at whether you can expand your marketing strategy. Think about how you can get the word out about your business and if there are any other ways you can bring more customers to your business.
Another thing to think about is encouraging your existing customers to spend more. One way of doing this is to bundle similar items together to encouraged increased spending. Alternatively, advertise related products that your customers might be interested in or not realize that they needed. For example, if you sell envelopes, can you sell postage stamps or advertise them alongside them?
3. Assess your operating costs
Cash flow management is not just about increasing the money coming into your business but to reduce the amount of money going out of it as well.
Look at your statements and consider if every expense going out is necessary. If it isn’t – get rid. If it is necessary, is there a cheaper alternative?
It can be difficult to cut out expenses, but it can have significant positive effects on both your cash flow situation and your business as a whole.
4. Streamline business processes
While this is not going to make an immediate impact on your cash flow, it will in the long term. It is important to concentrate on not only maximizing the money coming in but your time. The more time you have available, the more time you have to work on upping your cash flow.
Take a closer look at all of your business processes and assess whether they are all making good use of time. If not, can you speed up the process in any way? Many companies are turning towards automation for things such as social media management, and, as we mentioned above, the sending and chasing up of invoices.
5. Look at your equipment
Are you using slow, unreliable and outdated equipment, machinery or technology? If your equipment spends more time out of action than in action, this is almost definitely going to be impacting your cash flow. Either invest some money in updating them or consider leasing them if you do not have the money available to pay out upfront.
There are plenty of things that you can do to increase the cash flow to your business. By doing this, you will have more money available to re-invest back into your business to help it grow and become the success that you want.
