One of the challenges of running a business is dealing with the feast-or-famine of sales. It's not just about the flow of orders, but also the flow of cash. Sometimes the flow becomes a trickle. Be more aware than ever that late payment becomes more widespread during lean times. Keep an up-to-date cash flow forecast - here's how you can improve your business's cash flow.
1. Invoice Promptly
Do you find you are so busy building your business that you don't get around to invoicing regularly? You're not alone. This is a common — but potentially crippling — problem.
If you don't already have a system in place, start invoicing for projects on a regular basis. When taking on longer-term projects or clients, negotiate in advance for regular payments instead of allowing the amount to build up.
2. Create Incentives for Faster Payment
Small businesses can sometimes cut the time spent waiting for payment by offering a discount for quick payment. You may have received bills from businesses offering discounts of 1% or 2% for payment within 10 days. If you were going to pay the bill within 30 days anyway, you may as well pay up right away to get that extra discount. Good for profit and great for the business's cash flow.
3. Avoid Slow Payers from the Start
The best way to avoid cash-flow problems because of people not paying is to weed them out before they start owing you money. So if someone is about to become a significant customer, do your homework. Check out credit references. Call other businesses that have had a relationship with the client.
4. Use Barter Instead of Cash
You could reduce the strain on your immediate cash if you need something from someone and can offer goods or services of your own in return.
5. Trim Your Inventory
OK, so you can't go to a "just-in-time" inventory management system like many larger manufacturers. How about "just-in-less-time?" Money spent on inventory is money that's not producing any interest or savings for you.
Sometimes reducing inventory can be pretty simple. Why not make a list of all your obsolete and slow moving stock and sell it at a discounted price.
6. Consider Consolidating Your Loans
It's often tough for small businesses to borrow money, but if you do have several loans, review the rates and terms on each one. You may be able to consolidate two or more loans into a lower-interest account and improve cash flow. Be careful of stretching out repayments, but if you're thinking of talking to a lender about consolidating existing loans into a new one, you might look at taking on a longer-term loan in exchange for lower payments.
7. Control your costs
Even if demand is slow, always be in control of costs: know which are variable, can be acted on and how to make improvements.
8. Who are the essential members of your team?
Check employment terms and recognise who are the essential members of the team. If you have to make cuts, get your staff involved in the process right away – maybe a 4-day working week would be a better option.
9. Price properly
Don’t over-react to market conditions, understand whether demand is price-sensitive and don’t give profits away.
10. Confront potential problems early
Many small business owners will do anything rather than admit they may be heading for trouble. If you do find that your business could be in financial difficulty in the near future, confront the problem right away. It is much easier to turn around a business dealing with potential problems now than if you delay action and hit the rocks.