If you’re a typical entrepreneur, cash flow is not at
the top of your list for reasons to run your own show. Most of us run
our own business for other reasons like controlling our own destiny,
not wanting to answer to someone else, or taking pride in our work
Even so, cash flow is obviously a fundamental
aspect of a business – one you must treat with great care and skill.
Since generating cash to meet overhead, payroll and other monthly
expenses can quickly become difficult, today we’re offering some advice
that could help you shore up your business’s finances and help you
avoid one of the most common fiscal afflictions facing small business
today – insufficient cash flow . This is no trivial
matter. Without a steady flow of cash into your company’s coffers, the
business may sputter and eventually die.
easy to get caught up in fancy formulas for predicting and tracking
cash, most of the basics involving cash flow are common sense. First
off, you need to translate sales into real money (cash) as quickly as
possible, and bank it.
Once you’ve captured the
cash, your business needs to zealously guard it. That means saving as
much of it as you can and letting it out the door as payments only when
you absolutely must.
The object, of course, is to make certain that more cash enters ( positive cash flow) than exits ( negative
cash flow). But cash flow is notoriously difficult to predict, and
slow-paying customers, unexpected expenses and seasonal dips can
quickly turn a sunny outlook into a dark horizon.
10 ways for a startup to improve the positive side of the cash flow equation
- Ask for all or a portion of payment up front:
There are many products and services that you pay for on delivery or in
advance. So why give your customers months to pay up? Asking for at
least a deposit up front is a great way to jump-start your cash flow.
And if you establish the policy fairly and properly, it shouldn’t
alienate good customers.
- Sign up for a merchant account:
If you already have a merchant account, encourage customers to use this
option more often. Sure, you pay a fee. But for speedier cash flow,
credit cards can’t be beat. You get your money fast and customers are
accustomed to paying with plastic.
- Pay bills only when you have to:
That doesn’t mean you should be late; only that you needn’t be early.
For bills due net 30, for example, why pay at day 12? Paying right at
the deadline keeps vendors happy, but will help your own cash flow
- Manage receivables more closely: Create
a detailed “aging” schedule of what you are owed, by whom and for how
long. Call overdue accounts quickly, focusing first on the largest
amounts due. Ask if there is anything you can do to expedite payment.
- Create a cash-in/cash-out budget:
Note specific due dates for payables as well as receivables. Although
the balance between the two won’t always be predictable, the budget can
give you a fairly accurate picture of where your business stands in the
cash flow derby.
- Revamp your invoice:
A messy, unclear or inaccurate invoice is far less likely to be paid.
Make sure that what you send out reflects care and attention to detail
– just as you would in providing your product or service.
- Offer a discount for overdue receivables: This
can bring some quick cash in the door, but play this card only after
you’ve called the customer to ask for full payment. Set a short
deadline and make it a sweet enough deal (10-20%) for them to respond.
- Accelerate your invoicing:
If you invoice customers, do it quickly. Invoices can be prepared in
advance, and sent out at the earliest possible moment. More and more
small businesses are sending invoices as PDF files via email. This can
save days of postal delays. Ask customers if they will accept invoices
- Cut expenses: Accelerating positive cash flow is great for your business, but slowing the negative cash flow has the same effect.
- Set up a commercial credit line: Do this when times are good. Then tap the line when the need arises.
Our Bottom Line
Sure, tending to your financial bottom line sounds b-o-r-i-n-g. But if you make the key moves to protect and cultivate positive cash flow
for your business, you’ll find you’ll have more opportunities to truly
enjoy the other aspects of your business – the ones that led you to start up in the first place – a lot more.
© 2005 BizBest Media Corp.