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Smart Small Business Cash Flow Management Tips

By: Tim Roach

Smart Small Business Cash Flow Management Tips

The ability to manage your business’s cash flow could mean the difference between owning a thriving business or hoping it will survive from one month to the next. 

Dramatic as that scenario may seem, it’s a reality many small business owners face. In fact, cash flow issues cause nearly a quarter of all small businesses to close their doors.

Here are some tips and a slideshow on 5 Best Practices you can put to use in your B2B business operations to manage cash flow.

Create realistic forecasts. Forecasting your business’s sales potential for the coming months helps you gauge how aggressively your team should cultivate new leads, and actively close the warmest ones — but it’s important to forecast realistic outcomes. While being positive about your business’s potential isn’t a bad quality, factual forecasting helps ensure your business won’t be blindsided if opportunities don’t come to fruition as expected.

Maximize fixed costs. If you own facility space or have equipment that goes unused most of the time, consider renting those assets to other small businesses outside of business hours to enhance your cash flow. Pricey equipment such as large-format printers, industrial copy machines, presentation tools, conference room space, and parking spots may all have value to some other business owner — and can help you generate passive cash flow income. 

Stay as lean as possible. You may need to spend money on business costs such as production, customer service or your storefront to remain competitive within your industry, but you can creatively cut costs in other areas that the customer will never see or feel about their experience with your brand. Instead of investing in an office assistant, for example, consider reducing overhead costs with a virtual assistant and automated calendar tools. Likewise, if your clients don’t visit your office often, let your employees work virtually so you don’t have to pay for office space that doesn’t directly contribute to the bottom line.

Remember that time is money. Inefficiency at any point in your invoicing or accounts receivables process costs your business money. Studies indicate that top-performing companies optimize their invoicing processes, and are able to slash nearly 20 days from the time it takes them to issue an invoice to the time they receive payment. Try these simple methods to expedite how quickly customers pay:

  • Invoice electronically. There are hard costs associated with preparing, printing and mailing hard copy invoices, and they inherently extend the amount of time it takes for your recipient to receive your invoice in the mail, and authorize payment of it. Use electronic invoicing software to issue invoices via email, track receipt, and delivery confirmation, and automate past-due reminders.
  • Allow customers to pay online securely with a credit card. You’ll be paid for your work even if clients have cash flow issues.
  • Consider an early payment discount for customers who are typically slow to pay, and may be motivated by such an incentive. 

Analyze your payment terms. You can gain some control over your cash flow by clarifying every client’s payment terms upfront, and adjusting your payment processes in tandem to account for the cash flow shortage their schedule could present. If a client has non-negotiable net 60 payment terms, for example, consider writing terms into your business agreement that requires the customer to pay a percentage of the work upfront (before work begins). Likewise, you may opt to pay your vendors with a credit card instead of cash, to ensure your cash stability while you wait for payment.

Have an emergency resource. Having an emergency savings fund in your personal financial life ensures you won’t have to charge unexpected expenses to high-interest credit cards; establishing an emergency resource you can turn to when business cash flow is limited offers the same type of financial fallback plan. Whether you focus on building a savings account with a balance equal to about three months of your operating expenses, or you establish a relationship with a small business funding partner to assure you’ll have fast access to cash in the event of an unexpected shortage, being prepared can mean the difference between proactively adapting to cash management issues or being sidelined by them.

Try these simple cash flow management tips to ensure you feel in control of your businesses financial stability, regardless of what the future may hold.

Author bio: Tim Roach is a co-founder of Lendr, a provider of merchant cash advances for small to midsize businesses. Roach holds a B.S. in Finance from Linfield College and served in the United States Navy at Seal Team One. Before joining Lendr, Roach founded Oak Street Trading in 2002, a proprietary trading firm. 

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