Cash flow is the lifeblood of any business. But what exactly do we mean when we talk about cash flow? And why is it SO important to your business?
Cash flow refers to how money moves in and out of your business over a specific period of time, whether over one month, one quarter, or one year. To obtain a healthy cash flow ratio, you’ll ultimately want to be making more money than you spend. Ensuring you have enough cash flow to cover all business expenses as they arise (including payroll, office expenses, taxes, and more) is one of the most important things you can do to keep your business moving forward.
According to a study done by U.S. Bank, 82% of small business closures are from cash flow issues. So let’s take a look at how to avoid being included in that statistic.
Tips to Improve Cash Flowing INTO Your Business:
Set up automatic reminders to follow up on unpaid invoices.
Setting automatic reminders to follow up on outstanding invoices can help keep your customers accountable (pun intended!). Looking at your Accounts Receivable (A/R) report monthly can help you see which customers still owe you money, which customers are consistently late on paying, and which ones are accumulating a balance month over month.
Implement (and enforce) a late payment fee policy.
**Note that some states have VERY SPECIFIC rules and regulations on how and when you can charge a late fee. Check with your business attorney, CPA/tax preparer, and state offices to make certain you are complying with all the requirements before establishing a late payment policy.
Incentivize early payments.
Offer a small discount for customers who pay you upfront. I know a landlord who got tired of having to charge late fees to his tenants, so instead, he now offers a discount for rent paid prior to the 1st of the month. He rarely chases rent payments now.
Is it time to raise prices?
As small business owners and solopreneurs, we hate raising prices for our customers and clients, but at times, it is necessary. Whether it’s simply due to inflation, or the costs of doing business have increased, you need to increase your pricing appropriately to stay profitable. Have you added more value to your offers and are now undercharging for the service or product you offer? It may be time to take a look at your prices and increase them accordingly.
Make your cash work for you!
Do you have a large balance sitting in your operating account, or maybe even in a normal business savings account? By moving it to a higher-interest savings account, your money can make you money. Don’t let it sit there and collect dust!
Tips to Improve Cash Flowing OUT of Your Business:
Negotiate payment terms with your vendors.
If you’ve been a loyal customer and have been paying on time, it may be time to speak with your vendors about increasing the payment terms from due on receipt to 30 or 60 days from receipt. This will allow you the opportunity to better plan your Accounts Payable.
Evaluate your expenses.
Take a look at what you spend your money on every month/quarter. Are you paying for subscriptions to multiple vendors that provide the same thing? Are there trial subscriptions you signed up for and forgot to cancel? Could you cut back on office space, supplies, or even those business lunches? There may be more ways to cut expenses than you realize.
Evaluate your processes.
Are your processes costing you money? Is there a more efficient way to deliver your products or services? Should you consider outsourcing certain tasks to free up your time to bring in more business? As business owners, we sometimes think that if we do certain things ourselves, we are saving money (like bookkeeping and marketing, for example). In reality, NOT outsourcing some tasks could be costing your business more money.
Think about it; all that time you’re spending on tasks that could be outsourced could be time spent working with customers/clients (and invoicing for that time). Consider the mistakes you may make due to not being an expert in performing those tasks, and how much time it will take you to fix them. And finally, think about how much faster and more efficiently an expert could perform those tasks for you, while you’re working on growing your business. Oftentimes, spending money on experts in their fields can cost you less money in the long run.
Is it time to take a step back and evaluate how and when your money is moving in and out of your business? This simple task could give you valuable insights into how to improve your cash flow to ensure your business thrives now and in the future.
Accounting & Bookkeeping Services in NH
Do you need help evaluating your cash flow or general support with your accounting and bookkeeping? The experts at Fournier Accounting & Bookkeeping Services are here to help. We serve solopreneurs and small businesses throughout New Hampshire and the United States. Contact us today to get started!