One of the toughest hurdles for small business owners is effectively managing cash flow. Cash flowing into your business is essential to short and long-term success. Everyone wants to see cash coming in, but tracking money going out (expenses) is equally as important. If you’re not aware of what’s due, and what you have on hand, your business may be in trouble.
Too often, small businesses are not prepared for the inevitable slow periods in the startup phase. Without enough funding and financial cushion, your small business could be headed straight to a crash, without you even realizing it, until it’s too late.
In business, your cash flow is the most crucial metric to follow and track. The professionals at Brown Smith Wallace can help. While help is beneficial, learning how to increase cash flow into the business is also essential. Although you should have a system to audit your budget, additional tips to boost cash flow are found below.
1. Use Software for Tracking Inflows and Outflows
Invoicing and accounting software represents the simplest way for you to track with cash flow into their business. The right software can help automate many business processes. And dashboards typically provide an all-encompassing overview of the business’s cash flow at the click of a key. This bird’s-eye view is particularly helpful for small business owners. So, using invoicing software keeps expenses, income, and payments organized and easy to track. Software is the easiest way to track your costs, but it is not the only way. Good old spreadsheets can work too. What’s most important is to create a reliable, ongoing tracking system you use consistently. And deciding on your tracking system is the initial and most essential step you must take. A reliable tracking system ensures you can track and check instantly to know your cash flow position at all times.
2. Know Your Cash Flow Numbers
If I could shout this from the rooftops for every new business owner, I would. Your numbers matter, so learn how to track and review them monthly. When you’re new in business, many owners try to avoid the hard truth of start-up costs. Let’s face it, many businesses are not profitable for at least 3 years. It’s true, but can be gut-wrenching if you start your venture with magical thinking. The reality is, you’re likely to run in the red for a while before you can see your way forward.
Without proper financial funding, your cash flow margins will be thin, if not mostly negative. But, don’t run from the truth. Although there’s a tendency to hide from the negative numbers, do some mindset work and get to know your numbers. Your cash flow is the single-most-important indicator of whether your small business will thrive, survive, or go under.
3. Send Invoices Right Away
Statistically, when you quickly send invoices, they’re paid sooner. Early and on-time payments help boost your cash flow. When you wait or delay sending invoices, not only does it hurt your cash flow, it confuses customers. Be sure your invoices are detailed, specific, concise, and clear. It’s a great practice to include the payment due date right on the invoice to avoid confusion. Invoicing software makes it possible to send payment reminders for any customers who are delayed or have late payments.
4. Offer Several Payment Options
Flexible payment options make it easier for your customers. And, when it’s easy to pay an invoice, the faster you’ll get paid. Customers often prefer managing payments online. And, if your business is set up, payment systems such as PayPal, WePay, and Venmo make accepting credit card payments easy. Each service charges a small transaction fee, but the convenience of billing and accepting payments virtually anywhere in the world makes up for the cost. So offering customers online payment options encourages them to pay you sooner.
5. Reduce Total Operating Costs To Increase Cash Flow
Small business owners need to review expenses regularly and find areas to reduce costs. You must reduce the cash flow bleeds by spending only on essentials. A good rule of thumb is to avoid any expenses that aren’t absolutely essential to your business’ success, especially in the early years. Remember your business focus, ideal client, operating costs to deliver your services, and ongoing expenses. Only cut costs in areas where it makes sense.
6. Encourage Early Payments
It’s a good idea to offer customers cash discounts as an incentive to pay their invoices early. This is a tactic that will encourage customers to pay early and improve the business’s cash inflows. Also, make it clear that similar to early payments being rewarded, late payments will be punished.
One way to ensure and encourage early payments is to build customer trust. When customers trust you, they’re more likely to respect the terms by which your small business operates.
7. Experiment with Pricing
Another way to effectively increase a business’s cash flow is by increasing prices. Changing and increasing prices is something many businesses are hesitant to do. There are no guarantees when you’re in business. Markets change, things may spiral out of control, and demand for your product or service may fluctuate. You may lose some sales when you increase pricing, but dropping your price may positively increase cash inflow. There’s no harm in trying out new pricing structures to see how price elastic customers are.
8. Customers Are Always Right
Although many of the above strategies will work to help your small business thrive, the best way to increase cash flow in your small business is to consistently deliver high-value to your clients. When your clients feel nurtured and are happy, they’ll happily pay for your services, come back for repeat business, and send referrals. So, the best way to enhance cash flow in your business is to delight your customers
Successfully managing cash flow is essential for any small business to thrive. It’s important to track any cash (or credit) transaction coming in or going out of your small business. Making payments easier, value-based pricing, early pay rewards, and late payment consequences are essential strategies each CEO must master. When you successfully track cash flow in your business, you’ll fully understand your position, make more informed decisions, and keep your small business healthy and vibrant.