Small business owners have to deal with a lot of problems on a daily basis. Cash flow – is a thing that gives many entrepreneurs sleepless nights. And as the business grows, cash flow management stress also grows in its dynamism.
While most of the business problems can be managed with cash, managing the flow of cash is a little tricky task. Any small business owner will admit that cash flow is the lifeline of an organisation facilitating payments and investments. It is also a proven fact that any business which fails to manage their cash flows well end up losing the survival game.
Converting the sale of your products and services into cash is the ultimate goal of every business. This quick conversion will reduce the extension of payments building a cushion for your business. Here are some tips to improve the cash flow that helps you refine all aspects of your business.
Keep Future in Mind
The basic rule for any business is to operate smoothly is avoiding surprises. The level of difficulty to arrange cash at the time of need is high when the situation is a desperate one. It is important to keep timely and accurate accounting records as they are necessary to get a clear understanding of where your business stands financially. By analysing income statements, cash flow statements and balance sheets past months, you can calculate total available cash and get an estimate of results in the coming months. With the help of these pro forma statements, it is easier to identify any shortfalls before they occur.
As a small business entrepreneur, you need to anticipate future needs and also build a relationship with the bank using statements of operation. Such pro forma statements will help you to obtain loans and in the arrangement of funds as they project the future results of your business.
Make the Cash – Work
You must keep your cash balance in those accounts which earn interest. These accounts have a minimum balance requirement and are available with most banks. But if you want to keep bulk funds, avoid these accounts as they earn lower interest than saving accounts, money market accounts or CDs. You must transfer your funds to high interest earning accounts while maintaining aminimum balance in the minimum balance account.
Small business owners can maintain separate payroll accounts with bi-monthly cycles. This will help you to reduce extra administrative cost which is charged on collecting, tabulating and verifying payroll information. And by making direct deposits in the employee account you can avoid the cost of check writing and delivery. The cash should be transferred to payroll account just before payment to so that it can earn as much interest as possible.
Maximise Inflow of Cash
There are many methods to increase cash flow if you sell products or work on contracts. In case the order is large, complex or one time, it is logical to have 50% of the order as a security deposit. And if you work on contract, you need to set payment schedules. You need to set amounts that are parallel to or exceed the sinking cost. You should charge for any of unique modification demanded by customers.
If your small business if active in an industry where you offer regular service to your customers or deliver products regularly, consider a prepaid subscription. Apart from receiving cash up front, you will also secure the future sales. Receiving cash before proving service needs special treatment while accounting makes sure you take help of an expert consultant to help you with accounting records.
Minimise the Outflow of Cash
To minimise the outflow, you need to combine two aspects – cutting short all the unnecessary expenses and delaying payments to reduce demand on cash. Repair all the capital equipment rather than spending on replacing them and getting new ones. It usually a good bargain for small businesses to invest in used equipment than buying new equipment.
Cash is king when it comes to small businesses o any business, for that matter. It is important for small business owners to give attention to improve cash flow. As it might get tough to manage and enhance cash flows in growing businesses, a skilled and experienced consultant can handle the situation in a better way.