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.
Copyright 2005 Pam Newman
Pam Newman helps business owners keep money from slipping through their fingers. Pam is a Certified Management Accountant, Certified QuickBooks ProAdvisor, and Author of Out of the Red and Unlocking the Secrets of QuickBooks. Pam believes that it is important for you to understand the financial picture of your business, so that you can make informed decisions. For more information, please visit http://www.rppc.net
shuttle from O'Hare Bingham .. Lockport Chicago limo O’HareBack when I owned an inventory-based business, one of my... Read More
Owning a small business in Wichita, KS might not be... Read More
Consistency is a huge word when operating your business. I... Read More
During the 1980 presidential campaign, candidate Ronald Reagan vowed, if... Read More
The Franchise Group at the Federal Trade Commission in all... Read More
By outsourcing to skilled professionals you'll be able to grow... Read More
The book, "Become the Squeaky Wheel," by New Hampshire author... Read More
There are both fixed and mobile detailers. Consumers often will... Read More
Everyone wants to succeed in life. Most people want to... Read More
If you plan to do business online, then your website... Read More
Completion not Perfection Five Keys To Doubling Your Productivity and... Read More
Security Professionals provide the products and services necessary to create... Read More
Here's why 'WHY' is such a profit-making marketing trigger."Stop taking... Read More
What is a Virtual Assistant?? A Virtual Assistant is that... Read More
Business card size works well for invitations to special events.What... Read More
Manufactured and Mobile Home owners know that the weather this... Read More
What's your job profitability? I meet with business owners every... Read More
This is the tale of two business plans with very... Read More
If you're like the rest of us, you've spent a... Read More
Recently one of my customers told me the chaos swirling... Read More
Looking for ways to boost your cash flow? As a... Read More
10 Best Practices to consider as your SBIR negotiations approach... Read More
Winning small and home based businesses today must continually shake... Read More
Paul Leonard's BirthdayCards2Go.com paid greeting card service offers convenience when... Read More
Many auto detailers fall short in their sales presentations. I... Read More
Mishawaka limo O'Hare ..The success of your business depends on your ability to... Read More
Congratulations, you are starting a small business! You are taking... Read More
Disclosure laws in franchising are suppose to help the consumer.... Read More
Researching information for a recent business plan, I came across... Read More
Sacred cows take a long time to die. We get... Read More
Setting priorities in your business? Your first job is to... Read More
A Brilliant Marketing Idea... sounds great but what is it?... Read More
Time. As a small business owner, it's the commodity you... Read More
So there I was ? sitting in the audience of... Read More
1. There Are No "gimmes" ? They count two-foot putts... Read More
There are no "rules of thumb" in the pursuit of... Read More
As you may already know, asphalt paved parking lots do... Read More
Am I the only one that does not have an... Read More
When small businesses fail, the wreckage is often assigned to... Read More
I started working with another new client last week. He... Read More
There is significant competition in auto detailing and car washing.... Read More
Passion. Passion alone can make your business successful. As an... Read More
When do annoyances in a relationship become too much to... Read More
Due to the over regulation in the Franchising Industry and... Read More
One of the hidden perks of raising six children is... Read More
To maximum potential profits and dollars in a mobile washing... Read More
How to identify future solutions and opportunities?Your power page, if... Read More
Franchisor expansion policies are not as simple as one might... Read More
Buying a franchise is not for everyone. This guide will... Read More
In today's fast paced marketplace it is easy to neglect... Read More
Small Business |