Businesses do not operate in a bubble, which means no company is immune to unexpected downturns and financial instability necessitating a merchant cash advance. Whether due to a natural disaster, a labor shortage or an increase in commodities and raw materials, a successful business needs to be able to weather the storm until more lucrative times arrive.
Small businesses are especially susceptible to hardships brought on by a financial downturn, since these companies tend to operate with razor-thin profit margins. When disaster strikes, the chances of receiving a bailout or having a white knight investor suddenly appear with buckets of money are slim to none.
Most business owners think of business as adding up sales and then subtracting costs and expenses, which gives them their profit. While big profits are always nice to see on paper, they don’t necessarily equate to success. A company can be profitable and still go bankrupt if all its money is tied up in assets that cannot be used to pay overhead. This makes having sound working capital crucial to running a successful business.
Here are six tips for successfully managing your cash flow:
- Build a budget and stick to it
A good budget is the backbone of a successful cash flow strategy. By having a clear image of the financial data that represents the health of your business, you can more accurately track cash inflows and outflows, including estimating future expenses and potential outliers. With a better understanding of your expenses and costs along with a clear picture of your revenue streams, you’ll be able to more accurately calculate your break-even point. Don’t use the budget as a coaster for your coffee or to prop up your desk. Periodically review the numbers so you can stay up to date on all the movement of money in and out of your company.
- Immediately invoice customers and clients
The longer you wait to invoice clients and customers, the longer it will take for you to see those payments in your bank account. This delay causes lags up and down the company’s financial sheets, since you must continue to meet your financial obligations even if you haven’t been paid yet. Making a big sale on credit can leave your company struggling to meet other demands, especially if the big sale means you need to replenish a significant portion of inventory. Even if you extend a grace period or if it’s customary in your industry to wait 30 days to bill clients and customers, be sure to regularly track the invoices and ensure that late notices follow up after a set period of time.Consider emailing invoices to clients too, since this not only expedites the entire process, but it also provides you with a traceable record of when the invoice was sent to ensure compliance with timely payments.
- Immediately pay your bills
The payoff to immediately invoicing your clients and customers is that it should provide your company with enough cash flow to immediately pay your bills. Paying your bills on time eliminates late charges, which frees up additional money. Once you get into the habit of paying your bills in a timely fashion on the due date, you can more precisely pinpoint your future budgeting needs.
- Make it easy for customers to pay
The easier you make payment options for customers, the quicker you will get paid for your products or services. While accepting checks is one way to let customers pay you, it creates a lag in the time between when the customer pays and when you ultimately see that money deposited in your bank account. Provide as many options as possible for customers, including online payment options and debit transactions. Consider using a secure mobile app so customers can keep their credit card information linked up to the app and only have to press a button to pay you.
- Take advantage of technology
In addition to considering mobile-based payment options, many other innovative technological systems can help your business. A cloud-based software program, such as one for accounting, allows you to view your books from any device with Internet access. With constant access to your financial records, you can make on-the-move changes and stay up to date on all of your transactions.
- Focus on cash flow and profits will follow
Focusing all of your attention on profits instead of cash flow is putting the cart in front of the horse. Ensuring your business has enough on-hand cash to keep its lights on and pay its employees in the short term will eventually lead to profit in the long run. However, focusing on the profits a spreadsheet equation says will appear in a year will not help you pay this month’s bills and employees.