Cash is the lifeblood of your business. Keeping it flowing smoothly is essential for your company’s health and survival. The tricky part about how to keep cash flowing is that you can have cash flow problems even if your company is earning money and growing.
Slow payments, unexpected expenses, economic changes and other factors can slow the influx of cash into your company, making it difficult for you to meet your financial commitments.
These tips can help you avoid these problems and keep cash flowing smoothly:
Create and monitor cash flow projections
An important part of managing cash flow is spotting trouble before it hits. This foresight will enable you to take some simple steps to avoid the pain of a cash crunch.
The best way to do this is to invest a bit of time in mapping out your cash flow projections. A projection should include your upcoming expenses and revenues. Check the reality of these projections on a regular basis to determine if your projections are still on target with your actual cash inflow and outflow.
Maintain a steady sales effort
Neglecting sales for even a short time can severely impact the flow of cash into your company. With the many hats a small business owner wears, a steady focus on sales can be tricky to maintain.
Some discipline can help with this process, such as setting specific sales goals for each week, month or other time period that makes sense for your business. For example, you may want to commit two hours each day to selling, or to creating marketing content or social media posts such as writing a blog post or tweeting, or to updating your profile in location-based services such as Yelp. Or you may want to devote a fixed amount of time each week to networking, online or at local events.
Invoice and collect regularly
Many cash flow crunches are a result of slow customer payment. Sometimes customers are just slow to pay, no matter what you do. However, there are some actions you can take to help ensure that you receive payment as promptly as possible.
Invoicing accurately the first time will cut down on bounced-back invoices and their associated payment delays. Always ask about requirements for any invoice you will submit. Invoice promptly and attempt to invoice for part of a project upfront, particularly if you need to invest in products or people to help you do the work. Businesses across the board are paying more slowly than ever these days, so consider offering a discount for early payment or imposing a penalty if payments are late. When a payment is late, follow up as quickly as possible. Using invoicing and bookkeeping software-Quicken, FreshBooks, PaySimple, to name a few-can help with this process.
Maintain access to credit
Most businesses will experience a cash crunch at some point, and access to financing can be an important part of weathering these incidents with relative ease. If you have access to a line of credit or other financial resources, you may be more able to meet your short-term financial commitments if cash is tight.
To ensure that you have access to financing if you need it, seek financing when times are good. Develop a relationship with a business banker and determine what sort of financing might be best for your company. Apply for it when cash is flowing. Make it a habit to pay your bills on time—early if possible—so that your credit rating supports your financing needs as they arise. One late payment can be a black mark on your credit profile and diminish your ability to obtain financing, at least at low rates.
Avoid big cash outlays
Holding on to the cash you have helps to build a cushion that you can lean on when cash flow slows. One way to maintain a cash reserve is to avoid spending the cash you have. For example, you can lease machinery, technology and other items rather than buying them outright. While this costs slightly more over time, there is also a cost to accessing a loan or line of credit if you don’t have funds on hand when you need them.
Taking a few steps to be prepared for inevitable cash crunches can ease tight cash periods when they strike. This planning and groundwork will ensure that you can stay focused on important business opportunities rather than cash concerns.
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