It’s an understatement to say that running a business is a lot of work. Small business owners, in particular, are most likely to work tirelessly to perfect their services and products, increase sales, solve customer issues, find adequate help, train employees and more. Most important, the business itself will not seem like a success until the cash flow is sustainable.
If your business can pay for itself and keep you above water, great. If your business can also take care of you and your family, that’s even better.
To improve your business’ cash flow management, you need to figure out how to convert sales quickly while minimizing the amount of money you spend on various expenses in order to build a solid amount of savings and profit. At first, you’ll definitely need to invest in your business and shouldn’t spare any necessary expenses. However, once you get some momentum going, here are a few ways you can improve your cash flow management as a small business owner.
Create a New Business Spending Plan
If you want to see cash flow improve, you’ll need to create a rough spending plan or budget for your business in order to anticipate all your needs and expenses. Once you know how much you need to spend and save, you’ll have a much better idea of how much you need to earn to improve cash flow.
Consider what your plans are for your business and how you hope to grow it. What are some things you feel that you can do without and others that you absolutely can’t give up because they provide value and quality?
Offer an Additional Service or Product
Diversifying your income is always key, especially if you own a business and want to see it succeed. If you only offer one service or product, try extending your offerings to appeal to more people. This also promotes more options for your existing customer or client base.
Now that you have a clear picture of what your budget is and the expenses you anticipate covering in the future, you’ll know how to price your products and services to bring in more profit. Consider a product or service that coincides with the theme and mission of your business and offers something beneficial to your customers or clients. If it enhances their lives and improves their experience with your company, your odds of increasing cash flow should be plentiful.
Set Expectations with Clients and Customers About Payment
If you sell a physical product, collecting payment may not be that difficult for you because it’s likely you will receive compensation as a sale is made whether it’s in person or online. However, if you work with other businesses or individuals and offer a service, you may have to work harder to communicate when payment is due.
Ideally, you want to receive compensation shortly after your work is completed or your product is sold to reimburse yourself for any expenses you needed to create the product or implement the service. For business owners who find themselves stuck in ‘limbo,’ meaning they just had a profitable week or month but the payments have not been received yet, there are business loans available but you must also consider interest when taking out a loan.
A simpler way to secure positive cash flow is to set expectations with customers and clients about when payment is due. Note this on your invoices and contracts. Also, don’t be afraid to implement a late payment fee to ensure everything runs smoothly each month. If someone is having trouble paying, keep following up and offer payment plan solutions if needed.
Utilize a Business Credit Card
While business loans can be helpful, if you want to avoid having to take out a loan for the time being, you could look into a business credit card. As long as you have full control over your spending, business credit cards are a great way to manage your expenses and you can even avoid interest charges as long as you pay off your balance in full every month.
Nevertheless, if you make a purchase at the beginning of your billing cycle and wait 21 days to pay if off right before your statement is due, you’ll gain some extra time to maintain your cash flow.
Plus, a lot of business credit cards don’t have an annual fee which can save you money and some even offer cash back and bonus rewards for spending in certain categories.
Put Your Savings in a High-Interest Savings Account
If you’re going to build up a cash safety net, you might as well make your money work for you and utilize a high-yield savings account. That way, your money can earn interest overtime and result in more money with literally no effort on your part.
As an alternative or in addition to opening a high-interest savings account, you can also open a CD (certificate of deposit) or a money market account. Just be mindful that you may not be able to retrieve your money as quickly and you could be faced with a fee if you withdraw funds from your CD before its maturity date.
Your business’ cash flow should be high on your priority list – right next to customer service and offering quality products and services. Know what your needs are and how much it costs to run your business, then base your pricing off of those numbers while adhering to your goals. As long as you are putting your money to work and implementing quick turnaround times for payment, your cash flow management should improve.