You developed your business plan over the course of years. Since realizing your lifelong dream of becoming a business owner, your company has been profitable. However, due to cash flow problems, you’re barely keeping your head above water. If you can relate to this scenario, you’re not alone. According to Entrepreneur, as many as 82 percent of start-ups and small companies fail because of poor cash-flow management. If you’re like many business owners, you might not be well-versed in accounting practices. To fix your company’s cash flow problems, consider adhering to the following tried and true tips.
Complete a Cash Forecast
To ascertain where your company’s cash flow currently stands and where it is likely heading in the near future, completing a cash forecast is key. Oftentimes, small and medium sized businesses are ill prepared for the costs associated with rapid growth. For instance, as your sales increase, you may need to hire more employees and purchase additional inventory.
While these costs can quickly add up, you might not see a boost in your cash flow until much later. According to Paul LaRock, a principal at Treasury Strategies in Chicago, “Too many companies get blindsided by unfavorable movements in cash flow that are predictable if they really sat down and thought through it.” To prevent being stunned by expenses and multiple payments at once, create a rolling 12-month cash forecast.
Offer Clients Incentives
So many clients wait until near the due date of their invoices to send their payments. Perhaps, some of your customers’ invoices are past due. To rejuvenate your cash flow, think about offering clients incentives to pay their bills early. For example, you might wish to offer customers a two percent discount if they pay their invoices in 10 days or less.
Strike a Deal with Creditors
If business debt is stifling your cash flow, striking a deal with your creditors might be in order. Talk with them about renegotiating the amount of your payments. You can also ask your creditors for extra time to pay back your loans. To increase their odds of receiving funds from you, they may be willing to listen.
Practice Smarter Invoicing
If collecting cash from customers is an uphill battle, your invoicing habits might be to blame. Improving invoice practices may help you establish better relationships with clients. Invoices should always be timely, precise, and predictable. Strive to send them out as soon as work is completed. This document should inform your customers:
- What the terms are
- When the payment is due
- How the payment should be made
If an invoice represents multiple items or services, be sure to itemize all costs. This will eliminate questions about how the total was calculated.
Perhaps, one of the easiest ways to fix a cash flow problem is to cut expenses. To help you accomplish this important task, analyze the cost-benefit of each individual expense. If you’re paying for luxury items such as a monthly catered lunch or a coffee bar for employees, consider axing them. Shop around for vendors offering the best prices or negotiate with current ones. You might also be able to reduce rent, office supply, and utility expenses.
Besides slashing expenses, raising revenues will boost your cash flow. To achieve this goal, consider raising prices on goods or services. Small price adjustments often don’t dent sales. However, they can substantially increase profits. If you raise prices too much, your customers will likely go elsewhere. Launching inexpensive promotional campaigns can also help you tap into new segments of the consumer market.
Seek Professional Help
If you’re a busy business owner, you likely feel you never have enough hours in your days to get everything done. This may especially be the case if your company is suffering a major cash flow problem and you lack knowledge about accounting principles. To fix your cash flow issue, securing the right help from outsourced professionals is vital. For instance, an outsourced accounting team can analyze your fixed expenses and find ways to save you money over the long-term. While these accounting experts handle your cash flow problem, you can concentrate on the things you do best.
When cash flow problems are ignored, or not addressed appropriately, companies fail. Thankfully, by following the aforementioned tips, you might be able to turn an undesirable cash flow situation around efficiently and effectively.