When you undertake a venture like launching your own small business, one of the first things you’ll encounter is the need for regularcash flow. For entrepreneurs, cash flow provides the means to pay salaries toemployees, buy supplies and equipment, pay taxes, and fund daily operations. Here are some tips to consider when planning for cash flow challenges.
1. Require More at the Commencement of Service
When planning your cash flow, take a look at the cyclical nature of your inflow (sales) and outflow (expenses and operating costs). If you are paying your vendors Net 30 but you bill customers an average of 90 days before total payment is due, that’s a 60-day difference between cash out and cash in. While you might not be able to complete credit card payments at the point of sale because deliveries or installations are ongoing, you can start to shorten your cash cycle by requiring a down-payment, deposit, or setting up a payment plan.
2. Collect Payments More Quickly
An established process for processing payments and alertingcustomersto their financial obligations can help you make thecash flow cyclesteadier. Whether you are taking payments online, processing credit card orders onsite, or sending out physical invoices, the more uniform you are aboutengaging with customers, the better. This helps train customers to make their payments on time. It is important to make early contact with delinquent payers and to have a plan to offer options for payment if a customer is having trouble making theirpayment, for whatever reason.
3. Train Your Customers
An established process for processing payments and alertingcustomersto their financial obligations can help you make thecash flow cyclesteadier. Whether you are taking payments online, processing credit card orders onsite, or sending out physical invoices, the more uniform you are aboutengaging with customers, the better. This helps train customers to make their payments on time. It is important to make early contact with delinquent payers and to have a plan to offer options for payment if a customer is having trouble making theirpayment, for whatever reason.
4. Plan Ahead for Cash Shortages
Every small business has a rainy day every now and then, no matter how sound their business plan. It’s better for entrepreneurs to expect the unexpected and set aside a rainy day fund with three to six months of basic operating expenses. In fact, this component of your small business should be annotated in yourbusiness planand cash flow forecast. Another option is to engage yourlendersto secure a business credit card or business line of credit to help bridge any gaps in cash flow.
5. Sell Old or Unused Equipment
Any small business that deals with numerouscustomers, multiple locations, or is selling physicalproductsor services is likely to haveequipmentthat is not being employed to its best use. Instead of sitting in storage, that equipment could be creating an influx of cash flow. Take inventory of your physical assets annually and make note of the stuff you can sacrifice. If an asset has value, you can sell it, and you aren’t likely to need it to operate your business in the next 12 months, consider selling it and using the cash for a more useful purpose.
