You’d be hard-pressed to find a small business owner that hasn’t felt the squeeze of the cash flow gap at one point or another. Slow or late payments make it especially tough, as cash flow becomes even more unpredictable.
When it comes to running a small business with little to no reserve, it’s imperative that you do everything in your power to stay on top of your cash flow, and tackle unpredictability head on. Cash coming in is the lifeblood of your business after all.
Here are some of the best strategies to help you close the gap and stay on top:
- Eliminate unpaid invoices
Every outstanding invoice is money potentially lost. If you have several, look into why that may be the case. Are you invoicing clients immediately, or do you wait until the end of the week? Do you invoice via snail mail instead of email? Do you only accept cash or bank transfer, securing your invoices a spot on your customers’ “do later” lists?
This is one of the biggest issues small business owners face, but it’s one of the easiest to fix. Snail mail invoices are much more likely to be tossed aside and forgotten, which is an unnecessary hit to your cash flow. Ditch the paper and get into mobile invoicing with apps. Create and send an invoice from your phone or tablet and send straight to your customer as soon as the job’s done. To make the process even easier, accept as many forms of payment as possible. Many people don’t carry cash anymore and prefer to pay with credit or debit, Paypal and Apple Pay. Offering the latest payment options makes you look professional as well.
- Do new business with existing customers
While finding new business will always be important, so is nurturing relationships with your current customer base. Repeat business is a huge opportunity to build a consistent source of income. Give existing customers a reason to keep coming back, and also to refer your business to family and friends. Connect with them via social media so they don’t miss news or sales events. Connect on a personal level with handwritten notes and birthday cards. You can also reach out to customers you haven’t worked for in a long time by offering discount incentives to give your services a try again.
- Study your financial trends and plan ahead
You may have a general idea about when cash is flowing, and when it’s not, but there is a lot to be gained by taking a close hard look at your business’ trends. Take note of your monthly sales and expenses for the last 2 years, and learn how to forecast for the next 12 months. Just a few of the ways these insights can help you include:
- Planning your advertising budget so you can ramp up ads before your slow months to attract more clients. Advertise promotions to broaden your reach and entice old clients to return.
- Booking new jobs ahead of time for your slower months and arrange any outsourcing early for your busier months.
- Choose the timing of major expenses wisely
It’s tempting to jump on big dollar advertising opportunities and promotions. Some of them may need to be booked months ahead of time, or you’ll miss the chance. Same goes for investing in new equipment, professional development, etc. Plan out your expenses for the year against your cash flow trends. This will help you make purchases at the right time for your business, and help you avoid spontaneous purchases when you have other bills coming up. Just knowing where and when your cash is going out can help you greatly when it comes to stabilising cash flow.
- Sell unused assets
Do you have business equipment you don’t use? These are assets that should be sold for cash. You of course may be dealing with some depreciated assets, but if they are going unused, some cash back is better than none. Sell what you don’t need to help smooth out your cash flow ahead of slower months.
- Establish an emergency cash fund
No matter how many great strategies you put in place to help you avoid a cash flow crunch, the wisest small businesses will still have an emergency fund set aside for when the gap is too big to bridge. Prioritize putting aside at least three to six months worth of cash you need to cover your costs. You’ll have more peace of mind, and enough cash in the bank to make sure a minor disruption doesn’t have a devastating ripple effect that puts you out of business.
Remember that prevention is the best medicine. Set aside time to implement these tips before your finances suffer. With proper planning and good business strategies, you’ll avoid the pitfalls that come with inconsistent cash flow.