When cash flow is uncertain, even a successful entrepreneur can feel stressed out and trapped. Without cash on hand, it can be tricky to pursue new growth opportunities and operate with agility.
Tons of small businesses around the world deal with cash flow challenges regularly. One recent study by Intuit found that even if they ultimately ended up with enough funds to sustain their businesses, 69% of entrepreneurs have been “kept up at night,” losing sleep over cash flow concerns.
The good news is that—with the right approach—business owners like you can largely leave cash flow problems in the past. As a result, you’ll get the peace of mind that comes with knowing you have access to the funds you need to grow your business whenever you need them.
With that in mind, let’s take a look at 4 specific ways you can solve your cash flow problems or even prevent them from occurring in the first place, giving your business more flexibility along the way.
1. Minimize Cash Outflows
First things first: solve your cash flow troubles by reducing your expenses and delaying payments for as long as you can.
For example, if your electric bill isn’t due until next month, wait until the last possible minute to settle your account instead of cutting a check the moment you receive an invoice. By taking advantage of your net payment terms, you can stretch your funds out a few weeks longer.
The corollary to this is taking advantage of any early payment discounts. If a vendor offers you a percentage discount if you pay your bill within 10 days, by all means, pay that bill within 10 days to save.
Additionally, you may be able to reduce your bills by renegotiating rates or switching suppliers. For example, thanks to energy deregulation, you might be able to find a better deal on your electricity generation costs by shopping around. Depending on the nature of your business, you may also be able to convince inventory and materials suppliers to cut you a bit of a break.
Bottom line? Take a deep dive into your business’s finances, understand where your cash is going, and then take proactive steps to reduce your expenses without compromising on the quality of the products and services your business delivers.
2. Optimize Your Approach to Invoicing
In an ideal world, you’d send your customers invoices and they’d pay them right away. Unfortunately, it doesn’t always work out that way. Believe it or not, a recent study indicates there’s as much as $3.1 trillion locked up in accounts receivable in the US right now.
While you don’t have control over when your customers decide to pay you, you can encourage them to accelerate their timelines by invoicing them as quickly as possible.
Let’s say your company usually waits until the end of the month to invoice all of your customers, to whom you extend net 30 payment terms, at once. Now, imagine you’ve completed work for a client on the 5th day of a 31-day month. In this scenario, you’re essentially giving that customer a free 56-day loan—and that’s assuming they pay by the due date.
You can improve your cash situation by invoicing your clients right after services are rendered or products are delivered. At the very least, it should speed up payment a bit.
3. Invest in Business Productivity Tools
As a small business owner, you know all too well that there are only so many hours in the day, and you can’t be in 2 places at once.
Get more done on the go by investing in business productivity tools. For example, if you manage a distributed team—whether that’s a group of freelance creatives or a regional retail chain—a collaboration platform like Slack can help keep everyone on the same page.
Further, if you’re relying on an old-school cash register to run your store, chances are you have to be physically in the store to do your finances. By moving to a modern connected point-of-sale system, you can do much of that managerial work remotely.
No matter what industry your business is in, there are business productivity tools designed specifically for it. Do your due diligence and research your options. With the right tools in place, you can get more done in less time—and from any location—which should improve your financial situation thanks to productivity gains.
4. Know Your Financing Options
You might be waiting for payments to come in. Maybe you urgently need to replace a piece of equipment. Or perhaps a massive storm came through your town and you’re unexpectedly forced to close your cafe for a week.
Whatever the case may be, there comes a time in the life of most business owners when funds are low, but the bills keep coming in, and new opportunities present themselves. By familiarizing yourself with the small business financing options at your disposal, you won’t have to worry about where funds will come from should you find yourself in such a situation.
For example, many businesses can benefit from a business line of credit, which gives you access to a fixed amount of funds as you need them. You only have to pay interest on the funds you draw, and your credit limit is replenished when you repay what you borrowed. Business lines of credit are relatively easy to secure, and they’re flexible by design, which is why many entrepreneurs use them.
Now, let’s say your business gets a huge purchase order it doesn’t have the money to fill. Here, you might want to look into purchase order financing. In these arrangements, a third-party financier agrees to pay a supplier on your behalf to finance a customer’s order. The purchase order financing company then collects payment from your customer, takes their cut, and sends you the balance.
As every small business owner knows, cash flow problems come with the territory. Even when business is booming, money can be tight.
By understanding the steps you can take to reduce your expenses, stretch your money out longer, accelerate customer payments, and get more done in less time, it becomes easier to prevent cash flow problems from materializing in the first place.
Still, the urgent need for extra funds may occur at any time. If that happens, you need to be ready to turn to multiple sources of financing to get the funds you need to grow your business. We all need a little help sometimes, and if you’ve prepared in advance, that’s perfectly okay.