Like the gasoline that powers a car, cash is the lifeblood of any small business.
You need to keep track of cash throughout just as you would monitor the fuel gauge while driving. Because if you’re not careful, your business will quickly end up like a car running on fumes: stalled.
Cash management may seem daunting, but if you build a plan while your business is small, your cash supply will grow along with your company. Below are 4 ways to help you get started.
Before you can improve your cash flow, you need to be able to know where you stand at any given time.
Be diligent about keeping track of all cash in and cash out — weekly and monthly – in order to stay on top of it. Your cash flow status should never come as a surprise to you.
Once you have a good grasp of how cash moves in and out of your business, you can begin to be strategic about how to make your money work for you.
You can’t pay your bills if your customers aren’t paying you. Make your payment policies clear and put everything in writing. This could include penalties for late payments or discounts for customers who pay early. With everything on paper, there’s a smaller chance that surprises will arise.
Always invoice your customers as soon as possible and send reminders that payment is due. Don’t wait days or weeks. By waiting to invoice your customers, you give them less time to pay and increase the likelihood that the payment will be late.
Making it as easy as possible for your clients to pay you will help ensure you receive your money on time. Think about having an online portal/grocery cart and accepting as many forms of payment as possible. Consider drafting your client’s accounts, accepting gift, prepaid, debit and credit cards. Utilize mobile payment options (your smartphone or tablet can be used for credit card payments) like PayFox.
Reducing expenses is a great way to improve your cash flow. Before hiring new employees, consider whether or not a freelancer can do the work, especially if you’re just starting out. This will eliminate significant and consistent costs including salary and benefits.
Go green by reducing the use of paper around the office; it’s another quick way businesses today are reducing costs. And not having to maintain an expensive printer or buy paper and ink will really add up.
Be strategic about the suppliers you use. While using only a few suppliers may allow you to get discounts, using multiple suppliers will often give you more flexible payment options since due dates will be spread throughout the month.
Often times, suppliers will offer discounts for paying in cash. Take advantage of this opportunity. Also, be sure to take the allotted time you’re given to pay suppliers. Most of the time you will have 60 to 90 days to pay an invoice. This serves as an interest-free credit line.
Don’t pay late, but unless they’re willing to give you a significant discount, try not to pay early either.
Every small business will face the occasional bump in the road. It’s usually not a question of “if” so much as “when.”
Be prepared for these bumps by creating an emergency fund. Depending on your business, you will want to put aside enough to cover between 3 months to a year of business expenses.
To do this, first determine how much you want to deposit each month. Then, set up an interest-bearing business checking account for these funds.
Resist the urge to put these funds into the stock market. While a checking account may earn less interest, it will guarantee that the money is always available to you, should you need it.
Another option is for you to set up a business credit card that will give you the flexibility to offset some costs and pay your bills on a set schedule.
With these tips in mind, you can feel comfortable hitting the accelerator on your small business. Just make sure to keep your eye on the gauge.
If you’d like to learn more about cash management for your business, feel free to visit with a cash management specialist at a First Bank branch near you.