Given below are some cash flow secrets that can benefit your small business:
Customers Are King – But Only if They Pay You
You should keep an eye on all your outstanding debts and bills. You should immediately prepare and send your invoices once your customers receive your products and services.
Do not give credit for more than 60 days. If you do this, the risk factor in receiving your payments in a timely manner will rise significantly. If you are doing a customized job for a customer, then insist on a 50% advance at the time the order is placed, with the balance due upon project completion.
Be gentle but firm when asking for payment.
Keep Track of Your Expenses
You should keep track of all your expenses. Find out which expenses are putting a strain on your business and figure out ways that you can reduce or split those expenses into smaller installments. This will give you some financial breathing room.
Use an efficient accounting package to monitor your income, expenses and outstanding payments. This will give you an idea of your current financial standing at a glance, and you can then try out some new methods to increase your cash flow.
Reduce Your Debt Load
If you have taken out a loan to finance your business, then try to pay off that loan as soon as you can. Make it a priority, since the interest on the loan could be eating into your profits and hampering your cash flow.
Instead of buying a luxury vehicle on installments, buy a smaller car by paying in full and wait for a couple of years until you can afford a better vehicle without taking out a loan.
Prepare a Budget and Stick to it
It is essential to prepare a budget for every year and then stick to it. If you don’t, your expenses will mount faster than you expect and it will be harder to manage your finances properly.
This will help you in preparing for any unplanned expenses (and they do come up). Proper planning will ensure a smoother cash flow.
Pay Your Suppliers on Time
By paying your suppliers on time, you will not only win their trust, but will also ensure that you get the best possible rates for your purchases since many suppliers will compete against each other in order to do business with you.
This will result in more profits – and more cash for day-to-day business operations.
Try Factoring Your Receivables
If your normal credit period is between 30 to 60 days, and if your customers are financially healthy, then you can try factoring your receivables.
This will enable you to get instant cash for a small fee, and you will also be able to outsource your collection department to a factoring company. This will enable you to easily meet your expenses – and you could also accept larger orders without worrying about the financial consequences.
Having a healthy cash flow is essential to the success of any business, big or small. Use the tips above, and being cash-strapped will be a thing of the past!