Running a small business can be great, especially as you are able to manage your very own company. You can have hands-on interaction with day to day customers, work for yourself, and ultimately find a niche market or service that you can proudly provide to people.
Unfortunately, many small businesses can also have drawbacks and problems of their own. One common problem that small businesses face is the difficulty of a slow or small cash flow. Below, we have compiled a short list of 4 ways to help increase cash flow within your small business.
- Forecast
One important way to help increase your small business’s cash flow is to complete an accurate forecast to get a good idea of where exactly your company is positioned and what kind of cash flow can be reasonably expected. This can also help to get a better map planned for where your small business can go in the future. Too often, small businesses run into trouble as they begin to grow because they fail to account for changes that come along with growth. These changes can include increased operational costs, such as carrying a larger inventory or maintaining a larger staff to accommodate the growing business.
By having an accurate forecast completed, you will be able to anticipate times where cash may be tight and can better plan for them in the future. The forecast can be as simple as sitting down with pen and paper, but more often a rolling 12-month forecast is helpful for an accurate picture of your company’s future. This allows you to look at expenses and profit week by week. Eventually, you will start to see patterns emerge that can allow you to get a bigger sense of what the year might look like.
- Create Fast Payments
Having a system in place to ensure fast payments can greatly help increase your small business’s cash flow. There are many online software systems available, but you want to look for faster payments technology that can do it all. You want a system that is completely cloud based which will give your company an advantage over other non-cloud based systems. This means that your company will be able to request and receive payment anytime, anywhere with remote access. You also want a fast payments system that allows for increased transparency. This means that small business owners are able to get an insight into their company’s financials in real time, to gain a better understanding of their cash flow position.
- Strict Payment Terms
Having a plan in place, and then sticking to it, is the best way to deal with accounts receivables. To begin a plan, you must first ask yourself some questions. Determine the answers to questions such as, “Are you handling payment disputes fast enough?” or “What is the time it is taking to get paid?” or even “Do I have a policy in place for handling disputes?”. The answers to these questions will help you devise a plan for what your company needs to be successful.
Keep an accounting system where you can examine bills that are currently due, 31-60 days past due, 61-90 days past due, and bills that are past due 91 days and longer. Have a plan set up to request and handle payment for each time period tier. Having a set plan in place will allow you to quickly jump into action once a bill goes unpaid. By having a tight rein on the money that you are due, you will be able to keep your cash flow at your small business flowing and functional.
- Segmentation
Cash flow can be difficult if you only look at the entire amount of money coming into your small business. It helps if you separate pieces of your business and segment what brings in your money. Try to have a segment for customers, suppliers, and inventory. By looking at each segment separately, you will be able to see where exactly your cash is wrapped up and what can be improved. If most your accounts receivables are tied up in your inventory, you will be able to quickly make adjustments to increase cash flow.
Separating your business into various segments allows you to get a better handle on what exactly is going on and thus, identify opportunities to increase cash flow.
