As a small business owner, managing your cash flow effectively is one of your biggest challenges. Unfortunately, running out of money is a serious blow that can have a heavy impact on many startups, causing them to fail before they’re even able to get off the ground. In other cases, small businesses find themselves struggling to stay afloat due to poorly managed cash flow long after their creation. If you want to make your small business more successful, these tips for managing cash flow will help transform the way your small business operates:
Always Keep Some Cash Reserves
There will be times when your expenses outstrip your profits. As a small business owner, it’s difficult to always balance the money coming in with the money going out. When you’re prepared, however, you can ride through those times without overturning the delicate balance in your finances. Keeping a cash reserve will allow you to cover important expenses even when your funds aren’t flowing as predictably as you’d like.
Pay Attention to How Money is Moving Through Your Business
It’s not just about turning a profit. It’s also about watching cash flow on a regular basis to ensure that your spending is in check and you know how money is being used. Regularly checking in is the best way to ensure that your cash flow is properly managed.
Build the Right Connections
In spite of your cash reserve, there may be times when you need a solid lender to help move your business through a difficult time. Develop those connections during the good financial times so that when you are in a tight spot, you’ll already know where to turn.
Make Your Existing Money Work for You
If you have extra money, make sure that it’s not just sitting around waiting for you to use it! Take advantage of interest-earning accounts or other investments that will allow you to access necessary cash quickly so that you can keep building capital.
Set the Right Terms for Payment
It should be simple: you send out an invoice, and your customers promptly pay their bills. No problem, right? Unfortunately, all too often, you’ll find yourself struggling to get invoices paid on time. It’s not that customers don’t want to pay them; it’s that it’s not an urgent concern for them! By setting clear payment terms, you can substantially increase the odds that your clients will pay their invoices on time, leaving you with better overall cash flow. It can also be helpful to refuse service or delay the next order in order to encourage clients to pay past invoices.
As a small business, you can’t afford to have invoices just sitting around unsent. Instead, send those invoices out promptly so that clients will be able to take care of payment. Using automated invoicing software is the best way to make sure invoices don’t fall through the cracks.
Consider the Value of Deposits
If you have a customer who is placing a large order, a cash deposit on that order can help you purchase needed supplies, pay for workers, and take care of other business expenses. A non-refundable deposit before you begin putting together an order will also help protect your business against cancellation, which is particularly important for custom orders.
Sell Unwanted Equipment
Do you have old, obsolete equipment sitting around? Not only is it taking up space, it could help add some additional cash to your business. Take the time to sell those items that you’re no longer using so that you can invest in equipment that is more practical for your current business needs.
Keeping up with cash flow is an important part of small business management. From abstract concepts like keeping a closer eye on where your money is going to practical tips, these strategies will help you better manage your cash flow and keep your small business moving forward according to your plans. To truly maximize your cash flow and jumpstart your revenue, consider hiring a virtual CFO to manage your financials for you. From business strategy advice to reporting and bookkeeping, Numbersowl does it all.
Also published on Medium.