Protecting your cash flow is a smart way to protect your business, and it is not as difficult as it may seem. Read this article for tips you can follow to keep your business’ cash flow in the black.
1) Get a clear picture of your cash flow
Good record keeping habits are a must for any small business owner. Whether you hire an accountant to deal with your accounts or take on the task yourself, good records will help keep your finances organised and keep any pending issues from spiralling out of control.
It is easier now than ever before to keep a clear eye on your cash flow. There is cash flow software that is easy to access and download. There are courses you can sign up for to educate yourself. There are also many ways to access accountants (either in person or virtually). Whatever method you choose to go with, it is worth the investment. Make sure you keep a close eye on your cash flow, and this will let you know what changes you may need to make.
2) Prepare for an uncertain future
It is impossible to predict the future. The fact is that factors beyond your control can impact your business and profitability. Although you can’t predict every external factor that may impact your business, there are some steps you can take to prevent and handle change when different variables arise.
Being financially prepared for the unexpected can make a big difference. One way to ensure that you have enough money on hand is by gradually setting aside funds, and building a safety net. Once you have saved enough so that you could pay your bills for six months without any income, you are in a good cash flow position.
3) Get payment upfront
Business owners need to generate a steady stream of income in order to keep their businesses afloat. Even though offering customers a ‘pay later’ option may help your business’ profitability, offering this option can have a downside. Without close monitoring, this can easily lead to a situation that negatively impacts your cash flow.
Providing incentives to pay upfront is an easy way to assure that your cash flow will remain healthy. Incentives could include a discount or an extra service/product offered for immediate payment. You could also make it more expensive to pay later, or take away the option altogether. Alternatively, you could reduce the length of your pay later period. All in all, there are many creative options to choose from, and each one can improve your cash flow situation.
4) Extend payment terms
A company can typically stay in business while it can still pay its bills. Many of these bills (such as rent, paying suppliers, and loan repayments) are recurring. Talk with your landlords, suppliers, and lending institution to see if you can extend your payment terms. For example, instead of paying your supplier monthly, you may see if they are open to receiving payment quarterly. Extending these terms would give you more time to plan and save, and also reduce the likelihood of a bill payment being due at a ‘bad time’.
Keep on improving
If you are a small business owner, managing your cash flow is not always easy. That being said, it is a skill that can be learned. Do further reading on how to manage your cash flow, view the infographic below, and continue improving your cash flow management. This will set you and your business up for a safer and more successful future.