It takes money to make money. You’ll hear this saying often in business, and most every small business owner knows the challenges of managing cash flow. In fact, 40 percent of small business owners have experienced cash flow challenges that had a serious impact on their business, according to the SMB & Money Survey. Try these tips for keeping your cash flow in check during the coming year:
- Perform a Cash Flow Forecast
By performing a cash flow forecast you are able to track changes in your business’s cash balance by calculating income versus cash expenditures. This process will help you identify two crucial patterns to business success:
- How much money is coming in and going out of your business.
- When money is coming in and going out of your business.
Both are vital to helping you plan ahead and keeping your bills and employees paid. A forecast usually covers a year, however, it can also cover a short-term period such as a week or a month.
- Get Help
One of the scariest things about starting a new business is that it won’t be profitable. Roughly only 20 percent of new businesses survive past their first year of operation. According to the Global Entrepreneurship Report, over half of all businesses discontinue operations because of lack of profits or financial funding.
If you want to have a successful business and make money, keep your eye on the bottom line. As you consider the cost-benefit of every expense, remember there are a number of expenses that will benefit the profitability of your company. These might include getting a bookkeeper to keep your business finances in line or hiring a CPA to help streamline everything from payroll options to retirement savings plans.
- Have Consistent Terms
If you want consistent results, provide consistent terms. Make sure that partners and customers understand the rules of working with your business. Some good policies to include are a 5 percent late payment penalty after 5 days, and for service-based companies, a work stoppage after 30 days past due.
Be proactive about collecting payments from your clients. Small businesses that don’t have clear collections policies and late payment penalties are often taken advantage of. It’s also a good idea to create an internal timeline of procedures: when you’ll send an initial invoice, issue payment reminders, make collections phone calls, and cut off services if invoices aren’t paid.
- Incentivize Your Clients
After setting-up consistent and clear terms with your clients, you can take it one step further and offer incentives to specific clients. Providing a method for your clients to pay you faster can immensely improve your cash flow.
Try letting your clients choose the day they pay you. They may have different revenue cycles than yours, and allowing them to choose the day to pay may incentivize more on-time payments. If you’re looking to expedite payments further, offering a two percent discount in exchange for payment in 10 days or less will motivate clients to pay their invoices not just on-time, but early.
If you are having problems rowing the cash flow boat, a cash flow loan can help you navigate your way toward long-term business success. Combine that with preparing a cash flow forecast, outsourcing some of your needs, implementing consistent terms, and incentivizing some clients to make prompt payments, to start off 2018 on the right foot.