Lack of cash is one of the biggest reasons small businesses fail.
To avoid a cash flow emergency, consider implementing the following:
1. Control inventory. Inventory that sits on the shelves too long or never gets sold, can tie up cash. Estimate your business needs well, to ensure you purchase just enough inventory, and consider selling unused equipment which may carry a maintenance cost.
2. Effective invoice management system. Submit easy-to-read invoices to clients on time, with established due dates, contact information, payment method and payment terms.
3. Collect receivables. Waiting to get paid impacts profits and cash. Set up a collections schedule, using an accounts receivable aging report as a guide.
4. Develop late payment penalty policies. Late payments reduce your cash flow. Disincentivize customers from late payments by applying late payment penalty policies to support timely collection.
5. Reduce recurring costs. Evaluate recurring business expenses such as rent, utilities, payroll, loan payments, digital subscriptions or software costs and reduce, remove or renegotiate where possible.
6. End Unprofitable Relationships. There is a cost in dollars and time to tracking delinquent customers. Decide when it’s time to end a relationship with a customer who rarely pays or is habitually late.
7. Get help managing money. Hire an accountant or CFO to help with money management and avoid costly mistakes with your cash flow budget.
8. Track your cash flow. There are several free and paid cash flow management tools to help track revenue and expenses (e.g. Quickbooks, Wave Invoicing). Integrate a digital solution to monitor your cash inflows and outflows.
9. Remove friction. Make it easy for customers to pay, with multiple payment options, including mobile payment solutions to support getting paid faster.
10. Plan ahead. Consider large purchases, bills, insurance premiums, or other obligations that come after long intervals and set aside funds to be ready to pay them. Timing is an important aspect of cash flow. When you receive money relative to when money goes out, is just as vital as how much money you have each month
