You can’t run a business without money, this much is fact. However, opinions about the best ways to generate, and hold onto money, are almost too numerous to count. One common misconception is that a business must be profitable to have a good cash position. While profitability helps, especially in the long run, it is not the most important factor to managing cash. You might be double taking, but many ‘profitable’ businesses have massive cash flow issues. To make sure this does not happen to you, I have outlined four cash flow tips all successful small business owners know.
- Don’t Get Caught Off-guard
Surprises happen, and while we might not have seen the surprise coming the reality is that true ‘black swans’ are extremely rare. When running a small business, you must expect that surprises will happen and that some could effectively knock you off your feet.
To be a successful small business owner you need to be almost neurotic about how changes in the market could impact your business. This doesn’t not mean worrying about a meteor hitting your business. Besides owning insurance, there is little you can do to plan for such an event. Being neurotic means preparing your business for uncertainty as best as possible.
One of the best ways to do this is to structure your cash planning to make sure that you are maximizing the number of days which you keep cash on hand. Another tip is to set up a rainy-day fund. In the beginning, you might only be able to set aside 1% of sales. Then as your business grows try to increase this amount. In doing so, you are buffeting your business from external shocks which could catch you off-guard.
- Cash Should Work for You
Many people are killing themselves to get their hands on the almighty dollar. Don’t get me wrong, running a business is not easy. But from your first dollar, you need to find ways to make your cash work for you. This means setting up a separate account for non-essential cash – one which will earn you some interest.
Another way to make your cash work for you is to batch payments to suppliers. This way you can carry a larger average balance in your account and can reduce bank fees. Also, look at your payroll cycle. If you can move from weekly to bi-monthly or monthly payroll, then do it. This will give you more time to better manage cash. In addition, don’t try to manage payroll from your checkbook. Set up a system to handle payroll, this could include a separate (interest bearing) account for payroll and bringing on a payroll system to help you manage everything connected to payroll.
Remember, your cash should be working for you. If it is the other way around, then you need to take a deep look at how you are working today and determine what changes can be made to alleviate this issue.
- Get a Money Supplier
Think about it, money is the most important resource for every business. It does not matter which industry you are in. You need access to cash to survive. While banks still serve a purpose, they are no longer lender of choice for many small businesses.
Instead, you need to identify lenders who help small business owners get funding without hassle or delay. While many of these lenders offer short-term loans. These can be the perfect fit for many small businesses who need a quick solution to answer a gap in their cash flow. Just remember that short-term loans are for short-term purposes.
- Make Invoicing a Priority
Making and delivering what you do is fun, but getting paid for your efforts is what being in business is all about. This starts by managing customer expectations to make sure they know the importance of invoice and paying, on time. In fact, this is a great way to create cash for your business because you are making sure you are getting paid on time, every time. So, make sure you make invoicing a priority.
However, invoicing is not enough. You also want to make sure your customers pay. To do so you want to set clear terms with your customers as well as a simple process to paid. Make sure your customers understand this and you will do fine.