10 Ways to Ensure Positive Cash Flow for your Small Business
Starting a small business is difficult enough, but providing it with positive cash flow is even more scrutinizing. When small businesses find themselves experiencing difficulties in this area it can eventually lead to failure. In order to help you get over the hump we have 10 powerful and effective tips that will produce continuous positive cash flow.
1. Good Customer Relations
If you truly want to succeed in any business then it’s important to have the best customer relations for your consumers. If they believe you are considered a business partner and friend then it’s going to be easier to collect your money. When you treat a customer right they don’t want to sour the relationship by not paying an invoice.
2. Be Flexible with Customers
Sometimes a customer can run into a cash flow problem themselves. If this is the case you should be willing to be flexible. However, the majority of the time this is done by developing a relationship of trust with your customer. Reaching out and offering an extended payment deadline can be a huge help for the individual experiencing unexpected circumstances. Just remember that this is a courtesy that shouldn’t be taken advantage of throughout the relationship.
3. Proper Invoicing
Handshake business has been gone for years, because invoicing has taken over everything. This alleviates customers being lax about paying their bills. This is especially true for vendors that aren’t diligent about bookkeeping and invoicing themselves. Small business need to have a set invoicing system that will provide consistent use.
Proactive Sales Ledger Management
It’s very helpful to cash flow to be proactive in terms of debt collection. If a customer does not pay his bill on time, a simple phone call the following day as a gentle reminder of the balance due is often enough to correct things without damage to the relationship. When past-due balances are left to linger, resentment builds up on your end while fear takes over on the other end; both of which are a recipe for disaster.
Purchase Ledger Management
It’s not uncommon for vendors and customers to also play opposite roles with one another. In terms of accounts payables, you need to be prompt in settling your invoices on or before their due dates. If you pay your bills, your customers are more likely to do the same.
6. Petty Cash Accounts
While we will say that petty cash accounts are important, they should also be monitored. There is a lot of temptation when you know there is a little money left on the side. Often time’s businesses purchase unnecessary items with it, which eventually becomes a nickel-and-dime process. The best thing to do is keep it at a minimum.
Expense Mangement and Credit Cards
We could also lump these into your petty cash woes as well. The temptation here is extremely hard, and it gives you two ways to spend, spend, and spend. If you have company credit cards and an expense account; we highly recommend monitoring it closely and created a firm set of policies. This will also include verifying all transactions as well.
Assess New Customers
Considering carefully the payment terms for new customers is critical. If you are engaging new customers with whom you plan a long-term relationship, a credit check may be in order. Any customers who you suspect to be a credit risk should always pay cash or be kept on a short credit leash.
Dealing with Costs and Shrinkage
Dealing with overhead costs is the biggest chunk of money you have to consider. This pertains to everything from office equipment and rent, to tools, rental payments, and even excess inventory. Once you take a look at all these areas we recommend cutting out the things that aren’t needed for day-to-day operations.
Shrinkage is the reduction of usable inventory through accidental damage, theft, poor quality, etc. A good inspection, inventory control, and theft prevention program will ensure sure your shrinkage will be at a minimum. Keep in mind that inventory shrinkage is money coming directly out of your pocket.
Room for Savings
Even though savings isn’t one of the most talked about areas in the small business world, it’s still equally important. When you take advantage of a cash reserve account you’re basically ensuring yourself positive cash flow during any sort of downturn. It also help you meet company obligations if big clients fall behind on their payments.
Want to find out more about outsourced payroll, then visit Harry Turnbull’s site on how to choose the best payroll services for your business.