So what do 90% of business failures have got in common?
Lack of cash.
Cash is usually king. According to Dun and Bradstreet, 90% of business failures occur because of poor cash flow. In today’s delicate economy, maintaining a strong positive income for your small business is more important than ever.
Cash Flow Basics for Small Business
Properly, duh, right? Any high school economics student can tell you positive cash flow is important to a small business. But knowing about cash flow and keeping a positive cash flow for your business are two different things. So what do you need to consider with regards to your business’ cash flow? Three factors affect cash flow:
– Accounts Receivable (cash flowing into your business)
— Accounts Payable (cash flowing from your business)
– Overhead Expenses (a subset of accounts payable)
In this post I give you three ways to boost the cash flow into your business.
3 Ways to Increase Cash Flow into Your Business
If you accounts receivable records look good, your company cash flow should be good, right? Wrong. A positive accounts receivable column just helps your business if you can convert your receivables to cash. Your business’ accounts receivable is a listing of money owed to your company. But being due and having cash in hand are two different things. So how do you turn accounts receivable into cash faster for your small business?
1 . Bill Promptly and Accurately
Another “Duh! inch suggestion, but you might be surprised in how many small business owners are guilty of neglecting regular and prompt billing, seeing it as another paperwork hassle that goes on the back burner. If your small business will not bill promptly, start now. Assign an employee to handle this task if necessary. When working on long-term projects, arrange to bill monthly for work-in-progress and ask for a deposit before you start the project. Also, be very careful and detailed within your billing. Nothing strains a good business relationship like billing errors. Review your bills for errors and omissions just before sending them out.
2 . Prevent Slow or No-Pay Clients
You might be amazed at the kinds of clients that are slow to pay, or totally overdue. According to Dun and Bradstreet, the worst slow-pay offenders are big businesses, those with 500 employees or more. On average, these businesses take 62. seven days to pay up, more than 4 weeks past normal 30-day terms. Here’s the other shocker: the most common no-pay offenders are clients who owe $500 or even less. Apparently, these clients feel that this amount of cash is insignificant, and do not feel guilty about not having to pay up.
Before you take on a new customer or extend credit to a client, do your homework. You can do a credit check on all new clients using an outside company, or request credit references and do your own checking. Another option is to call other businesses that do company with your client to learn whether the client pays on time. If the potential client turns out to be the slow/no pay kind, don’t take them on. In lean economic times it may seem crazy to not accept all the business you can get, but clients who don’t pay upward can seriously and negatively have an effect on your cash flow. Not only will you wait endlessly to get paid for goods and services currently delivered, but you will also spend a lot of internal resources tracking delinquent accounts and chasing your cash. The best policy is: “Just say no!
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3. Plan for Fast Cash
You can find two ways to get your clients to pay upward sooner. First, you can negotiate short payment terms when you contract having a client. These days, many small businesses are asking for and getting “net 15? conditions. See which if your clients could be open to these terms. Second, for anyone who is not comfortable asking for “net 15? terms, you can offer clients a lower price for early payment. Offer an one to two percent discount for paying within 10 days. While you’ll be losing just a little cash to the discount, you’re overall cash balance will be a lot more healthy.
These three simple strategies for cash flow management can be the difference between your small company operating in the black or getting one of the business in the 90% failing bracket.