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Cash Flow Tips for your Small Business.

Posted by Linda Chambers on Fri, Apr 06, 2018 @ 09:00 AM

Cash flow is a big part of any business. If your customers are not paying you in a timely manner then you will have a hard time paying your vendors for the supplies you need to do business, to support the infrastructure to run your day to day operations, and enough left to support you and your family.


Here are some tips on how to improve your businesses cash flow.

Improve your Accounts Receivables

Asking for payment for work you have done is the first step in getting paid and if you let this drag along then so will your cash flow.

  • Invoice as soon as work is completed and make it trackable so you can easily follow up until paid.
  • If possible have invoices due immediately upon completion of work.
  • If work will be done over a long time period get partial payment up front.
  • Have an easy way for customers to pay; ex: Accept online credit card payments.
  • If a contract customer is on terms, shorten them as much as possible; ex: NET 10 or NET 15 instead of NET 30, or NET 30 instead of NET 60.
  • Have late payment interest terms clearly listed on the invoice that you know can be enforced in your state. Then be sure to follow through and use them.

Extend your Accounts Payable

Just as you want to be paid quickly so do your vendors, but see if you can work with them to see how far out you can hold out on payments or pay other ways.

  • Can you purchase a larger amount of product for longer and better terms?
  • Can you set up equal guaranteed monthly payments to vendors you order from frequently? This can help you with budgeting and spreading out payments.
  • Ask if you can get longer terms with a vendor as your relationship time with them increases. Ex: NET 45 or 60 instead of NET 30 after 3 or 5 years.
  • Use lines of credit or credit cards to extend time to pay for items.
  • Consider bartering services for products.

Know your Breakeven Point

This is the amount you need to make each day, week or month to meet your basic business needs. Sales above this will be adding to your profit margin.

You need to first add up all the expenses it takes to be in business even if you did not do a day of work; rent, utilities, insurance, equipment costs. This is your breakeven point. Then you can figure what your working costs are; labor, fuel, chemicals, other supplies. These costs are added to your breakeven costs to arrive at your daily, weekly or monthly costs to subtract from your sales to get to your profits. Have a plan in place on how to distribute your profits.

Know what you are Spending

This is an obvious statement but you would be surprised how much money is spent that owners have no idea where it went.

  • Set up a budget. Be sure to add in any new line items as they come up. Do not have a lot of uncategorized miscellaneous items.
  • Track every penny. Keep every receipt, which is easier if you have a set place that they all go and a set time each day to enter them.
  • Have a computer program or system to enter and track everything.
  • Try to not use cash, check and card purchases are easier to track.
  • Do not intermingle personal with business purchases. If you need to pay for items for both at one store do it separately.

Be Mindful when Spending and Paying

There are ways to help you from wasting money you are working hard to make.

  • Before buying an item make sure it is something that is really needed. Ex: A must have supply for a job already booked vs. something nice to have.
  • Be sure to take advantage of any prepay discount from vendors, to pay off credit cards before their interest date, etc.
  • Take advantage of interest or payment discounts by paying with auto pay from your business account.
  • Be sure to know about and use any other discounts your vendors offer. Ex: Industry Organization discount, Military discount, volume discount, etc.
  • Set up auto drafts or payments for recurring bills to not incur late fees or penalties.
  • Do not tie up your money in unneeded or seldom used inventory.

Have a Cash Reserve

You never know when an emergency or unforeseen expense will come up. If you start putting a little away each month you can be better prepared and not have to use other high interest cash like with lines of credit or credit cards.

  • Set up a separate account just for these funds so it not as easy to draw on them for just any reason.
  • Have a goal set for your fund. Start with what it would take to pay for a whole month of bills, then extend that to 3 months then 6 months, etc.
  • Put a set amount or % of your profits aside each pay period until you have reached your goal amount. Once reached extend the goal or earmark it for a new project.

Plan ahead

Have a business plan in mind for growth and work toward making it happen.

  • Plan for equipment replacement. Everything has a work life and if you have saved up for it over time you won't have to use credit and pay interest for part or all of it the next time.
  • Plan for new or upgraded equipment as well. Want to have more than one crew working for you next year then start savings for that new rig now.
  • Put money that you know is not really yours, like for taxes, aside in a separate account so that it will be there when the quarterly taxes come due.

Small business owners need to understand that most fail due to the lack or misuse of money. So if you follow these suggestions we have covered you should have a better chance than most to succeed.

Tags: business plan, cash flow

How to monitor and improve your business cash flow.

Posted by Linda Chambers on Sun, Jul 15, 2012 @ 09:30 AM

The most important part in making sure you can pay your monthly bills is your business's cash flow. It doesn't matter how much money you have billed out and are sitting on your books if it is not in you bank account it won't help you. Making sure you have the money available to pay your obligations in a timely manner can also save you money besides improving your credit and bottom line.

Here are steps you can take to managing your cash flow.

Use dedicated accounting software. It is not just necessary to have a computer but to have and use software designed especially for managing your money. I love QuickBooks and there is a program level for just about any kind of business out there, big to small, basic to advanced. There are plenty of them out there and I am sure you can find something in your price range. Remember using it will save you countless amounts of money and time.

Set up auto bill payments. This is very common these days but makes financial sense as well. If you set your self up a few different checking accounts to manage your resources. You could have one that just handles payroll, taxes and license fees. One that you use for all your fixed monthly bill expenses like your phone, rent, vehicle payments, electricity that don't or seldom vary month to month and then a third general funds account where everything funnels through. You can set up that each week, a few set days a month or just once a month that a set amount will be taken from the general fund to go into the two others to fund them for their automatic payments to be paid from. Try to have a two week or monthly surplus of cash in each. This way you can easily see when you are gaining a surplus of cash flow, that could be set aside in a savings account or when you are having a shortage where funds will be needed to be added from savings or by other means of credit. You will also not have to watch and worry about each separate payment date since they will come out when needed.

Have a Collection Policy. Not having one is like planning to throw money a way and not following one you have in place is like setting a match to it. Many of you do not extend credit to most of your customers. Pressure washing is typically a do the job get paid right then business. But those that do contract cleaning, large company fleet washing, building management work, etc. you are doing a job and then having to wait for the money to come in sometimes 30 to 60 days letter. Letting customers get away with not paying you can sometimes hurt you more than not having the work in the first place so don't let it happen. Make sure your collection policy is a part of every contract and press it's points when needed. As soon as you let some slip, "Oh but they give me so much business.", you will be having to slip your self to your vendors and putting your business credit at risk, not theirs.

Immediate Payment on Accounts Receivables. Have a system in place where customers can pay you as easily as possible. The time for waiting for the check in the mail is disappearing. Money transfers are becoming instantanious so why shouldn't you have that too. Rather than spending time and money chasing down late payments use methods to get your money faster. Find the best deal to accept credit card payments. Yes there are fees involved but figuring in that small percentage to the cost of your doing business will pay off. Most smart phones and iPads can now have point of sale scanners and applications to accept payments, companies like PayPal and Intuit have programs. Your own bank may have web access payment options you could use even with checks by taking photos of them to be automatically placed into your account. Instead of mailing out past due notices you can send e-mails that contain payment buttons in the e-mail. Put in your contracts that they must supply you with credit card information and that your bill will be drafted each month on a certain date, 30 days after work is completed or some other set way. State, add and collect on late fees. Once a company knows you will do what you said and charge more for late payments, you will become one of their vendors they are more apt to pay instead of let side when their money is tight, freeing up your cash flow.

Increase Prices. No one likes to think about having to increase their prices to their customers. But as a small business owner you have to know what it takes to keep your business running while still giving you a fair profit. The added costs for creating a cash flow system, like the computer, software, credit card processing costs, bank fees, web site, e-mail program etc. are all things that add to the basic price that you should include to your customers. But that is not to say that you can't give something back to those customers that help you with your cash flow in the form of discounts or incentives. For instance, say offering customers charge cards services run you 4% of revenue. Then increase all of your services by that same 4% and then give the cash customers 4% off their invoices and those that pay by check 2% off. Or what ever the electronic check transfer cost percentage is. This way you are not penalizing those customers and maybe others that may have thought about using a card will pay in cash instead. Want your contract customers to pay you faster? Then offer them NET 15 3% as an incentive.

Reduce expenses. Things can change rapidly, just look at the price of gasoline for instance. Your operating costs could vary widely month to month with out really changing anything you are doing day to day. For this reason you should be looking at your expenses at least once a quarter if not every 30-60 days to see where you can make improvements. Keep in close touch with your own vendors to be able to take advantage of sales, ask to be on mailing or e-mail sales lists, friend vendors that are on Facebook have twitter or foursquare accounts etc. they may send out announcements you would want to use. These are tough times and many companies are shopping for new customers and are giving sometimes big discounts to get them.

Choose your customers wisely. Especially contract or big time and cost customers. It does not do you any good to have bid and won a fleet wash contract if they are having financial issues of their own, don't have all the equipment at the location when they are suppose to, requiring revisits or extended time frames for your employees. Do your homework on them first by using D&B or other credit reporting companies that we discussed earlier in the first segment of these posts. Have it clearly stated in your contracts that services can and will be skipped or suspended if payment falls behind. There is no reason to keep working if you have little or no hope of seeing payment in the near future. Work like that can not only slow down but block your own cash flow by using up time you could have had for finding or doing other work that would bring in money.

Communicate with your vendors. We all know it is hard to be waiting on Peter to pay Paul, but letting the vendor, that is also waiting for payment, sit in silence is not the answer. And doing so can start to damage or ruin your business credit with them. Sometimes just a quick phone call or e-mail stating that you have not forgot them, that you know your invoice is due and letting them know when you expect your payment in order to make yours is all that is needed to keep a good relationship. As bad as you feel having to call the vendor, they feel just as bad not knowing and having to contact you for collection. Sometimes it is easier to ask for NET 60 with a slight penalty than losing your NET 30 status which will only tighten your cash flow in the future if you must begin to pay that vendor for supplies or services up front.

I apologize that this post got so long, there for I will postpone our Corporate Credit Do's and Don'ts until next time.

Tags: Business, cash flow

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