Cash flow, the lifeblood of every business. You always need ample cash on hand, but bills need to be paid and investments made. Cash in, cash out. Cash in, cash out. Simple, right? Well, until the cash out creeps above the cash in—then you’ve got a problem.
It’s not an uncommon dilemma. Poor cash flow management is the second biggest cause of startup failure. Not even a great product supported by a power team can compensate for lack of cash flow—it’s a non-negotiable part of business success.
Maintaining your cash flow is less about the big money decisions and more about the tiny everyday management of your capital. It’s easier said than done, that’s for sure, but we’ve identified a few simple habits to make sure your cash flow is always in a happy place. Adopt these habits now and you’ll be positioned to keep your lifeblood flowing smoothly.
1. Use Simple Software to Track Your Cash
The most vital concerns about cash flow come down to awareness and control. You can’t manage your cash flow blindly, nor can you expect to influence it without control of the right levers. That’s where bookkeeping software can help.
A simple bookkeeping solution like Sunrise helps you save time and provides an accessible, up-to-date view of your business’s finances. Software like this helps you keep track of the ins and outs of your cash so you always know where the money is going. With these insights, you’ll have the data to make better business decisions—do you have cash-on-hand to make that investment? What expenses do you need to cut to afford that piece of equipment? Does your receivables schedule match your payables schedule?
You already know how important it is to budget, but budgeting does little good if you don’t track toward it. And software like this doesn’t just provide awareness about your cash flow—it provides the control, too. Keep reading to learn how.
2. Influence Timely Payments
Dealing with difficult customers who never pay on time? You’re not alone. For many small businesses, funds in the pipeline aren’t the problem—it’s the struggle for capital on hand for real-time expenses. Over a third of small businesses report that not getting paid by clients within the terms of the agreed payment schedule is the biggest impact on their cash flow.
But you don’t have to stand idly by and helplessly watch your cash flow ebb and flow. You can improve your chances of getting paid on time by practicing a few clever habits:
- Reward Quick Payments: Typical payment terms give customers 30 days for repayment. Consider setting up a discount program to reward customers who pay in less than 10 or 20 days. Having fast-flowing cash could be worth much more than a 2-3% discount.
- Penalize Late Payments: Remember, this isn’t personal—it’s business. Let customers know that failure to pay on time will result in accrued interest. The interest might not pay for the squeeze in cash flow, but it may incentivize customers to be respectful of their payment agreement.
- Stop Working With Unreliable Clients: If clients aren’t paying on time, they might not be worth the hassle. Yes, it’s true, many small businesses can’t be too picky about who they work with, but if you’re consistently waiting on unreliable clients to pay the bills, it may be time to work with better customers.
3. Always Have a Line of Credit Ready
Whether your business is struggling with seasonal demands or a crisis sneaks up, a business line of credit is there to save the day. It’s a financial safety net that’s there when you need it but you’re under no obligation to use.
Lines of credit fill in the gaps between the ups and downs in your cash flow. Need to build up your inventory in anticipation of future sales? Borrow from your line of credit and keep the business operations running smoothly. Piece of vital equipment suddenly break? Cover the repairs with a line of credit and pay it off with the ongoing cash flow.
A business line of credit helps you cover holes in your cash flow so your finances stay in a healthy place. Make it a habit to always have a line of credit available—you won’t regret it.
4. Take Advantage of Accounts Receivable Financing
If you need to quickly convert your IOUs into cold, hard cash, accounts receivable financing will be your best friend. Basically, you get quick access to cash by selling your unpaid invoices at a discount. It’s a quick and easy way to keep cash flowing through the business pipeline.
This solution is perfect if you have lots of money pending transfer to your bank account but need cash immediately. Instead of taking out a short term loan or maxing out your credit cards, make it a habit to take advantage of accounts receivable financing.
Sooner or later, you’ll encounter a situation where you lack the cash to pay the bills. It doesn’t mean you’re a failure—it’s just the natural ups and downs of owning a business. Get ahead of the curve and anticipate that you’ll eventually have cash shortfalls. By applying these simple habits to your small business, you’ll always be prepared to keep the cash flowing during the good times and the bad.