One of the top reasons that small businesses fail comes down to not having enough cash. You have heard the old saying “It takes money to make money” and if you are a small business owner you know that in many cases that holds true. When you run out of cash, or cash reserves get low your business operations come to a screeching halt. You can’t pay your employees, invest in new equipment, or eventually even keep the lights on. And if your business is the primary source of income for your family, these lean times can be especially scary. But don’t be overwhelmed, we have some tips that you can implement starting right now, to turn things around, or get started on the right foot.
- Keep Cash Reserves- We do this in our personal finances, keep an emergency fund, so why aren’t we doing this with our businesses? If cash is tight right now, just start small. Save as much as you can into a business savings account each week, or month until you have enough cash to cover your basic expenses for 1-3 months (depending on the size of your business and your amount of overhead). This will give you peace of mind and security if sales drop for a week, a month, or even a quarter.
- Collect Receivables ASAP and extend payables as long as possible without incurring late fees- You should try to limit the number of invoices you send on Net 30 or Net 60 terms. Be firm with your clients and customers about paying on time and find ways to incentivize early payments. Conversely, you should be trying to extend your payables as far out as you can. Work with your vendors to get net 60 to Net 90 terms on your payables, but always be sure to pay on time so that you don’t rack up late fees.
- Keep Business and Personal Finances separate- This tip is vital to your survival as the business grows. If you have your personal bills and obligations mixed in with your business obligations, priorities and healthy cash flows will become nearly impossible. Open a separate checking and savings account for your business operations and don’t make any personal purchases from that account. If you are taking an income from the business, don’t let your personal draws deplete the cash reserves in the business or ultimately it will fail.
- Work to increase sales, but also cut expenses where ever you can- This may seem obvious, but when was the last time you sat down to really examine your business expenses and look for ways to trim them down. You could boost your sales by 300% this year, but if you also increase your expenses at the same rate, you won’t be in any better position at the end of the year. Some ways to free up cash might include: canceling old subscriptions you don’t use anymore, working to reduce employee turnover, through training and mentoring work to increase employee productivity so that you can minimize payroll costs, sell assets that are no longer in use. The list could go on and on and for every business, it will be different. The important thing is to take the time to examine your business expenses regularly.
- Don’t let yourself get behind on your accounting record keeping- How will you know where you stand today if you are months behind on your accounting? For the small business owner who is filling all the office roles for their business, it can be difficult to keep up with everything all at once. Often the first thing to go by the wayside is bookkeeping, most likely because it is generally the least favorite office activity of business owners. We encourage you to stay disciplined in your bookkeeping, working up to making entries for the previous day, each day. In the long run, you will spend less time doing it in small bites, and you will be able to get up to date financial information at a moment’s notice.
- Explore subscription-based options- Another great way to help keep positive cash flows is subscription-based options, whether they be products or services. Subscriptions help you gain recurring customers and depending on how the subscription is structured can even guarantee you income for a certain period, whether its 6 months, 1 year, or even 2 years. Look for creative ways to incorporate this dependable and sustainable income into your business model.
Cash flow problems can be a scary thing for small business owners, but you don’t have to let them sink you. Use the six tips listed here to get your finances on the right track and start seeing positive cash flows. Need help getting started? Empowered Insights has several options to get you moving in the right direction, from business plans to training courses, we have products and services to suit many price points. Fill out the form below to get our 12-month business plan guide to help you get started!