Cash is King?That is what everyone tells us and it is true! You cannot function successfully in any business without proper cash flow. So if this Cash Principle is so well known, then why is it that so many businesses struggle? Sometimes the obvious is not always so obvious when you are entrenched in running the day-to-day aspects of your business. Here are 7 Tips to Improve Your Cash Flow!
1. Cash and Carry. Operate a cash and carry type business versus worrying about receivables. The best business plan is one where customers pay at the time of purchase so you don't have to worry about invoicing or collection procedures. Invoicing and collections take up valuable time, so you want to come up with creative ways to incentivize payment immediately. Set the ground rules in the beginning so your clients know what you expect.
2. Receivables Collection. Collect your receivables in a prompt manner. Don't let them hang out there forever until your customers decide they want to pay you. Being a good steward of your business is "good business", so have a process in place for invoicing and collections. The longer your receivables are outstanding, the less likely you are to collect. You don't have to be mean and rough to collect promptly from your clients. A good rule of thumb is that you should always have a due date on the invoice and then send out a follow-up statement within 10 to 30 days from the due date. Each industry and business environment has different insights as to what is the "ideal" time. I would not send follow-up correspondence any sooner than 10 days past due. Payment may just be delayed by the mail; however, waiting longer than 30 days is too long. If you have not received payment within 45 to 60 days of the due date, then a phone call should be made to follow-up with your customer. Accounts that go past due 90 or more days should be taken to the next level of collections with an outside agency, internal collection "ninja" or any other mode you have established for collections. Find what works best for your business and stick to it. Each day that you are delayed in receiving payment is an additional cost of doing business. Time is money.
3. Receivables Funding. Implement an accounts receivable funding program. Factoring of accounts receivable has become very popular and it can be a great way of keeping the cash flowing. Businesses who deal with large businesses or government agencies lend themselves to utilizing factoring programs. If your clientele is made up of small businesses or individuals, you may find it more difficult to establish an accounts receivable funding program. Why? Funding companies are monitoring risk. There is less risk with larger companies or government agencies. Or so they think!
4. Vendors. Negotiate terms with your vendors to help delay the outflow of cash payments. Lots of vendors have payment terms where you can delay the payment until end of the month or maybe even up to 60 days. This allows you a little float time to use their money while you are working on your project. Then hopefully you'll receive payment from your customers prior to needing to pay for the products you purchased. Some companies also go the route of consignment. Then you are selling someone else's goods and don't have your money wrapped up in inventory. This option can help you increase your product offerings without having to invest large amounts of money in inventory.
5. Customer Deposits. Have your customers pay a deposit prior to the start of the job. This will help you cover your upfront costs as you start the projects. It's very common to have a deposit with the signing of your contract. It decreases the risk associated with nonpayment because you've received a portion up front. You can also implement periodic payments throughout the contract vs. a single payment upon completion of the project so that cash is flowing in consistently.
6. Revolving Credit Line. Establish a revolving line of credit through a lender to help you with potential cash flow crunches. Especially if the amount of savings from prompt pay discounts are greater than the financing charge from the lender or the lender's financing charge is less than what your vendors might charge for late payments. This helps give your business a safety net so that you can continue to operate during those times when you are offered great specials if you buy today but may not have extra cash available.
7. Savings Fund. Establish a savings fund to help you operate through slow times. Most businesses have swings in their business flow and managing cash effectively can be a challenge. Store away extra during the good times to help alleviate issues during the slow season. I know this sounds easier than it is, but if you take out a percentage each month and transfer it to a savings account then it will be "out of sight and out of mind."
You may find that each of these 7 tips is viable for your business, or maybe only 1 or 2. Anything that you can do to focus on better cash flow will provide benefits to your business. The worst thing you can do is sit back and "hope" that things go well. Look around! See those "CLOSED" signs on the surrounding shop windows? They played the "hope" game and lost. What are you going to do? Hope? No?implement a plan for cash flow management starting now.
Contact: Pam Newman is a Certified Management Accountant, Author, and Certified QuickBooks? ProAdvisor for Financial and Point-of-Sale software.
For more information, visit her website at http://www.quickbooksinformation.com or call 816.304.4398. QuickBooks? is a registered trademark of Intuit. RPPC, Inc. is a third party provider of training for QuickBooks?, and is not part of Intuit.
family-safe home cleaners Northbrook ..Everyone wants to succeed in life. Most people want to... Read More
Hew Hampshire car wash market. Well we have visited every... Read More
Articles abound advising the business community how to properly screen... Read More
Are you a home or small business owner and you're... Read More
Before you start a business we encourage you to prepare... Read More
We are noticing an increase in the length of time... Read More
When deciding to host a fundraiser for your company or... Read More
According to the American Society for Aesthetic Plastic Surgery, since... Read More
1. Leadership Is Learned ? While many people appear to... Read More
There are countless ways to save your business money. Unfortunately,... Read More
Every business plan book tells you how the Executive Summary... Read More
I meet and talk to hundreds and hundreds of business... Read More
Mobile detailers will find themselves with lots of competition even... Read More
The Customer Analysis section of the business plan assesses the... Read More
A Small Business Opportunities Magazine is one of the new... Read More
You're a small business owner with a hot new product... Read More
1. There Are No "gimmes" ? They count two-foot putts... Read More
It's just like a marriageTo expect a bank manager or... Read More
SBIR Corner: FFP vs. CPFF contracts:In the SBIR/STTR world, the... Read More
What would happen if you decided to take an extended... Read More
Since you own a business you probably have liability insurance... Read More
Most doctors never distinguish the difference between customers and patients.... Read More
Never underestimate the power of perception! Perception plays a major... Read More
"So what?" is a lovely question.It can lead to a... Read More
Why? Because they have access to world class public relations... Read More
residential cleaning services Deerfield ..The restaurant industry in the United States employs an estimated... Read More
Q: After years of dreaming about starting my own business,... Read More
A janitorial cleaning service is one of the best businesses... Read More
Let's face it, we all tend to get stuck in... Read More
The Federal Trade Commission is upgrading the franchise law and... Read More
Whether you operate a chain of restaurants, a mom-and-pop convenience... Read More
Most folks in the pressure washing business are happier to... Read More
When someone owes your small business money, you certainly feel... Read More
Writing a business plan for a mobile car wash is... Read More
So you think you're not justified in taking time away... Read More
This morning, I went to take a short walk outside.... Read More
Every employee would like to earn as high a salary... Read More
In today's marketplace the words 'job security' have become an... Read More
As you may know, there are many ways to incorporate... Read More
If you're starting your own business or currently work for... Read More
A cherished business doctrine is that growth must be a... Read More
Approximately 200,000 new businesses are started each year. More people... Read More
Most businesses accept checks as form of payment for goods... Read More
First, we need to define the different kinds of skip... Read More
Doesn't it frustrate you when you've given good service, sometimes... Read More
What would happen if you decided to take an extended... Read More
Now that you have invested your time, energy and money... Read More
There's no question that hard work and a little luck... Read More
Auto Detailing: Maintaining A Commercial Carpet ExtractorYou should drain your... Read More
Am I the only one that does not have an... Read More
Small Business |