Are you having trouble with cash flow? Perhaps your sales are up, and expenses aren’t out of hand, yet you can’t pay your bills on time. Or, your customers are late paying you? Cash flow problems affect most small businesses at some point, but you don’t have to let it ruin you. Here are just a few things you can do to keep your cash flow in the positive.
Cash flow is a problem that plagues every small business from time to time. On paper you look like you’re doing OK; your sales are higher than last year, and your expenses haven’t increased much. Things look like you should be making a profit, but your creditors are breathing down your neck, and you’re always playing catch up.
What can you do? There are many options to make life easier, from getting a loan to seeking financial help from family members or investors. But before you take out a loan from the equity of your equipment with www.EquifyLLC.com/equifyfinancial/ (which is also an option, by the way) to cover your costs, here are some tips to get you moving in the right direction. For those who are just starting out, you can also check out our Cash Flow Startup Survival Guide, so you are ahead of the game before you even run into any cash flow worries.
Get invoices out quickly
If you invoice clients, you’ll know that you’re not going to get paid until you send out the invoices. If you send out all your invoices on the 28th of the month, and your customers pay their bills around the 25th of the month, you’ll have to wait 30 days – or longer, perhaps – before they pay you. Speed up cash flow by sending out invoices as soon as you ship products or complete a job.
Raise your prices
When you started your business you may have priced your products or services on the low side as a way to attract customers, or because you didn’t realize what all your costs of doing business would be. Now, you may have plenty of work coming in, but it may not be profitable. You may find that you have to work 80 hours a week to get the work done, or that your costs for supplies or raw materials have increased. Or, you may have expenses you hadn’t planned for, like the cost of payroll taxes for employees, a need to move out of the home and to rent office space, or a need for new equipment or more physical space to run your business.
If you are in a situation like this, or if you are still charging the same prices you did four or five years ago, raise your prices. You can’t operate a small business on razor-thin margins. By raising your prices, you’ll have more cash coming in, which can help tide you over slow periods or times when customers pay late.
Work on retainer
One of the problems with self-employment is that income may vary drastically from month to month. When you wear all the business hats, the need to do the work often interferes with ongoing marketing. If you don’t market steadily, there will be times when no business comes in, and as a result, times when no money comes in. Under this feast or famine scenario, you may get $20,000 in payments one week, and then not get another cent for two or three months.
One way to even out the irregularities in cash flow is to seek clients who will put you on retainer, paying you a guaranteed amount of money each month. Retainers are usually set up so that you guarantee you will set aside a specific number of hours to do work for a client each month. The client pays that amount whether they use up all the time or not. If they go over the time, they pay an additional, hourly fee. If they don’t use up all the time, they lose it. The unused time does not accumulate from month to month.
Lawyers and accountants use arrangements similar to this. Public relations, computer consulting and other businesses in which clients may need repeat attention are also good candidates.
Teach employees to upsell and cross-sell
Increase your profits by increasing your average order size. To do so, train your staff to suggest related products or more expensive options for the product or service the customer requests. If you sell online, see if you can enable upsell and cross-sell features in your shopping cart.
Watch check clearance times
Money in the bank isn’t money to spend, at least not immediately. Although the Check21 laws make it possible for banks to process checks faster (and therefore debit your account faster), the law does not require banks to release funds any faster than in the past. Thus, your bank may take two business days or more to clear local checks. If your customers are out-of-state, your bank may hold deposits for up to ten business days. If there are sizable amounts of money involved, those ten business days can seem like an eternity.
Accept credit cards to speed up cash flow
You don’t have to be a retail store to accept credit cards from your customers. Businesses and government agencies, as well as consumers, use credit cards to make a wide variety of purchases. Instead of waiting 30 days, 60 days, or more to collect payment from your customers, you can get paid in 2 or 3 days by asking them to pay you with a credit card instead of having you bill them. You’ll have to pay a percentage of each sale to the credit card company, and possibly a monthly fee, but those expenses may be negligible when you consider the time and money you’ll save by not having to send out monthly statements. This is a win-win arrangement. The customer can still string out payments, but you’re not on the end of the string. An added bonus: speeding up cash flow can help you speed up payments to your creditors, which may lower or eliminate interest payments you make on your payables.