We love the relationships we develop with our small business owners and are proud to be a strong supporter of small business growth in our community. To that end, we are continuing our trend of blogging about fiscal responsibility, with a discussion on one of the biggest stumbling blocks to small business owners; Cash Flow.
In small business, cash flow is king.
Small business experts agree that cash flow is the biggest stumbling block when it comes to small business success. For the entrepreneur, managing your cash flow is priority #1. Unfortunately many entrepreneurs are focused on running the day to day aspects of the business and don’t take the time to step back and look at the big picture of their business’ finances. We thought we could help by offering some tips for small business owners when it comes to managing cash flow.
First off, understand what cash flow is. Cash flow is the liquid money that you have coming in and going out of your business each month. It does not include inventory or pending receivables.
Tips to keep cash flowing:
- Budget – Business owners need to have an idea of how much money is coming in and how much money is going out each month. When you sit down to look at your budget, be sure to factor in things such as sales cycles, discounts and terms provided to your customer as well as the timing of equipment or inventory purchases and the payment of taxes.
- Review & Adjust – Once you have created a projected budget, it is a good idea to review it on a monthly basis and make any necessary adjustments. Did a piece of equipment break and need to be replaced? How do your projected sales for the month compare to the added expense? Are there places you can cut spending to make up for the need or are there other deals closing that can cover the expense?
- Create a Plan B – Coming up with a plan for dealing with the times when cash flow is tight BEFORE cash flow becomes tight is key. What will you do if your biggest client delays payment of an invoice or two? Do you have personal assets available to cover your payroll costs? This is where an established banking relationship can become critical. Setting aside cash in a savings account for the tough months is a great idea. Opening a Line of Credit is an excellent Plan B for times when cash flow is low.
- Manage Invoicing – Making sure the money you are owed by your clients is billed timely and gets paid timely is key when it comes to cash flow management. Here are some tips to help you get paid the money due:
- Stay on top of billing. Send invoices out as soon as the services were received.
- Send payment due date reminders. You want to stay in the forefront of your client’s mind and a quick reminder of an upcoming due date is a great way to do that.
- Send invoices digitally.
- Give discounts for clients who pay early.
- Set your payment policy up front. Be sure to clearly define what the consequences will be if a client pays late.
Obviously, this is a very important topic and we have only touched the surface. We did have a few odds and ends we wanted to add so please look for some more tips below:
- Consider asking for down payments and/or retainers for your services.
- Never assume that your clients are going to pay on time.
- Use the terms that have been given to you by your vendors. If you have payments that are expected to come in but have not, then delay making payments on invoices that have given you terms. This helps you hold on to your cash a little bit longer.
- If you haven’t been given terms, ask for them.
But the best tip we can give you is to develop a relationship with your bank. A trusted relationship with your banker can be an entrepreneur’s best friend. Someone who understands your business and the seasonal nuances can be a real asset and help you to provide insight on steps you can take to keep your cash flowing. Remember, we are here to help businesses reach their goals so if you have any questions about specifics and how our products can help, please don’t hesitate to call.