In today’s business scenario, managing cash flow has become one of the most crucial challenges experienced by small business owners. Many of them often get so busy selling their products or services that they forget to focus on major factors of any successful business – cash flow and cash collection on sales.
Unfortunately, these mistakes may lead business owners to be unable to pay for bills and other expenses, which can make any profitable business crash. If you’re one of many small business owners struggling with this common challenge, it’s time to embrace changing your financial outlook.
Managing your finances isn’t an impossible task as long as you follow some proven techniques. Read on to know about four straightforward tips that’ll help you manage your cash flow efficiently.
1. Set Targets for Cash Flow
Setting targets for cash flow is one of the best ways to maintain cash flow stability. Review your cash flow forecast periodically and set weekly targets, which you can update accordingly. It’ll help you to have a clear outlook for the next couple of months.
You can enjoy improved cash flow by setting targets for credit controllers. Credit control is used to advocate good credit among reliable businesses and to reject requisitions of delinquent borrowers. This will enable you to increase sales and lower bad debts.
2. Plan or Create a Cash Flow Forecast
Adjusting an existing cash flow forecast or developing a new cash flow forecast allows you to foresee the future status of your cash balance. Small businesses are often unprepared to manage the costs associated with fast growth.
More business means more manpower and a larger inventory, which means a significant amount of money going out with an unpredictable return. Forecasting helps you avoid potential problems by predicting the ups and downs in your cash balance.
If you’re a small business owner, you can start with an annual forecast. With the cash flow information in your hands, you can look at the investments or bigger purchases safer and more efficiently.
3. Be Clear With Your Payment Terms
Don’t wait for 60 or 90 days to pass to receive payments after you’re done with your deliverables. You can’t use your hard-earned money until payments are received from the clients. Instead, introduce clear payment terms.
Write down the key factors of a clear payment discipline as described below:
- What is your present receivables period?
- What is your payment collection process?
- What is the level of contact you’ve with your clients?
- In case of a dispute, what is the average time of identifying it?
- What is your policy for getting disputes resolved?
Answering these questions and taking measures to streamline what isn’t in order help you have clear payment terms, as well as improve the customer service you provide.
4. Invoice Quickly
Some of the major factors that influence cash flow significantly are in the business owner’s hands, such as the time you take to invoice your clients. Even if you invoice after two weeks of completion of a project, the payment will most likely take another two weeks to reach your bank account.
Discount programs expedite payment terms. For instance, you can introduce a discount program that offers a 2 per cent discount if payment is made within seven days from the date of your invoice submission. You can also change the discount for payments based on your requirements and the pay habits for your clients.
There’s more to come! Stay tuned for the next installment of my cash flow tips for small businesses that will give you even more great ideas on how to improve your cash flow for your business so you can get your finances back on track.
Are you taking advantage of Small Business BC’s wide selection of seminars for entrepreneurs and small to medium-sized business owners? Space is limited, so don’t miss your chance to register today.
And if you want specific questions answered for your business, make an appointment to meet with a Small Business BC Business Advisor or if you have finance questions, book a meeting with Small Business BC’s Ask an Accountant service now.