A consistent and reliable cash flow will give a small business owner the ability to control how they use their resources to improve their business. Knowing that you have more than enough money coming in to cover your expenses will give you the power to plan the best way to use the excess. On the other hand, if you don’t have enough coming in, it will also give you the ability to make changes in advance, so you don’t end up losing your profits to bounced check fees and interest.
Here are ten quick tips on how to improve your small businesses cash flow:
1. Negotiate longer terms with suppliers.
In tough economic times, suppliers are usually more willing to work with you on establishing agreeable payment turns, so they don’t lose their valued customers. Ask your supplier if you can arrange 45 or even 60 day terms, if you place a small deposit upfront. You should also make sure to space out when your payables are due, so you don’t have everything due on the first of the month.
2. Check client’s credit references and payment history.
Always do your homework when dealing with a new business to ensure they have a good reputation for paying their receivables on time. A receivable won’t help your businesses cash flow, if it is never paid.
3. Offer clients incentives for early payments
Every successful business is always actively looking for ways to save money. By offering your clients a 1-2% discount for payment within 15 days, it will improve your chances of receiving payment earlier.
4. Send invoices immediately
Handling your invoicing online will allow you to quickly enter an invoice and email it directly to the client. There is no need to wait for snail mail when there is email. In most cases, the sooner it is in their hands, the sooner you will get paid.
5. Send reminder notices
It never hurts to a client a little nudge before an invoice is due. A professional and friendly reminder notice may help move your receivable to the top of a company’s payable list.
6. Expand your customer base
Many small businesses land one or two big clients and rely on them to keep their business afloat. To improve your cash flow, work on landing smaller accounts that can fill in the gaps while you are waiting on a cheque from a big client.
7. Look for ways to reduce costs
There are always ways that you cut unnecessary expenses. Labor is a major expense for most companies and there are less expensive alternatives available online. You can hire a part time freelancer or use an online provider for services that don’t require a full time employee. You can also eliminate luxury expenses, like membership dues, that are not earning their keep.
8. Create a cash flow reserve for emergencies
If you take a small percentage of your earnings and place it in a separate account, you won’t have to rely on credit when an emergency catches you off guard. Every business needs a financial safety net.
9. Review your cash flow statement regularly.
You can’t avoid or fix a problem, unless you know it exists. Regular monitoring of your cash flow is essential. Regular assessment will allow you to make adjusts, follow up on debts, and stay in control of your finances.
10. Compare your rates to competitors
Many small businesses price their products or services based on they feel it is worth, rather than what a customer may feel it is worth. Check your businesses’ pricing against similar businesses to make sure you are not undercharging or overcharging.
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