6 Tips for Improving Small Business Cash Flow
What’s the #1 thing a business needs in order to stay sustainable? Cash. Lack of this important asset is one of the biggest reasons small businesses fail.
But more specifically, what is cash flow? Simply put, it’s the money flowing in and out of your business. If more is coming in rather than going out, you’ve got positive cash flow. If the opposite is true, then you’re risking being overdrawn and you may need to cut out major expenses or scramble to find funds.
When your business is starved of cash, bad things can happen: you don’t have the funds to pay your operating expenses, employees, and even yourself! You have to take out loans or use credit cards when you can’t afford to or worse, file for bankruptcy.
Your biggest client is late to pay or defaults entirely on a payment that you were really depending on. Suddenly, you aren’t able to pay important expenses. What do you do? And, how do you do it?
Ensuring that you have a solid cash flow plan in place will keep your business going strong. Don’t wait until you find yourself in the tough position of having to scramble for funds when you can prepare for those rainy days in advance.
In addition to having enough in savings to cover at least 3 months’ worth of operating expenses, there are other ways to make sure your business has healthy cash flow from the get-go. Here are some tips to help you get started:
- Start your business in the positive! Invest as much of your own cash into the business before you take out a loan or use credit cards.
- Make sure your billing terms are clearly defined. Have a signed contract in place before starting any work!
- Follow-up consistently on Accounts Receivables. I.e., for every 5 days past an invoice due date, send an email reminder. Your invoice may have gotten lost in the inbox shuffle, so be sure that it's getting seen and processed.
- Accept credit cards to make it super easy and quick to receive payments. Implement an automatic recurring charge if payments are to be made on an ongoing schedule.
- Only spend money on what you really need! Periodically review your expenses to make sure that you’re not over or unnecessarily spending in any category. If you’re noticing recurring charges for an app or product you don’t consistently use, cancel and save your money!
- Read Profit First by Mike Michalowicz.
I recommend every business owner read this book, no matter which stage you’re in! In this easy to digest book, you’ll learn super simple ways to increase profits. You’ll also get greater insight into exactly where your business may be burning through cash as well as tips on how to put that fire out.
If you’re ready to take action, check out these resources for more tips on managing cash flow:
- QuickBooks - 10 Tips for Better Managing Cash Flow
- SBA.gov - Managing Small Business Cash Flow – Answers to 10 Commonly Asked Questions
- SBA.gov - Projecting Your Business Cash Flow, Made Simple
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Need help with cash flow in your own operation? Reach out to me here!