Cash flow statements and a variety of tools are crucial to keeping a business alive and thriving. Start-ups are especially vulnerable if they do not take control of their cash flow from the outset. Many new businesses do not survive and experts believe that a lack of cash flow control is often to blame.
Profitability is usually the goal of young businesses, but continuity and growth are really all about cash flow, even after a business is profitable. To this end, SCORE provides a template to help businesses track cash flow so they can manage it over the long term.
Cash flow can also be monitored by setting account balance alerts with your bank and training an employee to keep an eye on the cash flow. Successful business owners also recommend that you talk frequently with key executives of your bank. You may be able to establish payroll and inventory or general loan accounts by providing them regular reports on your business’ financial standing. If you see a shortfall coming, you can discuss a credit line or temporary loan to cover it.
Delay cash outflow on purchases with Net 30 credit lines
A Net 30 terms credit line provides your business the flexibility of making purchases when they are needed to keep operations moving efficiently, even if your cash flow won’t support the purchase for another few weeks. These credit line accounts can be very useful to obtain supplies needed for continuing operation.
Another advantage of net terms credit lines is that they can be used by employees to make purchases without the security risks and hassles associated with handing out credit cards. Some suppliers, such as NeweggBusiness, accept purchase orders in conjunction with net terms accounts. Employees can make several purchases in a month, but accounting has only has one bill to pay at the end of the 30 days.
Always pay on time to keep up good relations and credit ratings. It makes for good business with suppliers, who are then more likely to come to your aid if a temporary shortfall or negative event hits your business.
Cloud accounting technology can be a big help
If you keep your accounting records in a secure cloud, you shouldn’t have to worry about backing it up and it will always be accessible to you and trusted employees. With these tools, you can check your finances on your computer, tablet, or phone no matter where you are. The security of the information should be validated, however. Limit the number of employees who have access and be sure they are trustworthy.
Related: Accounting software for small- to medium-sized businesses
Get it together on receivables
The first step is making sure customers know when you’ll expect payment. Invoice quickly and do it by e-mail if possible. Make it easy for customers to pay you and encourage rapid payment. For example, you may be able to encourage electronic forms of payment rather than waiting for checks to come in the mail. Accepting credit cards, PayPal, Stripe, or other forms of payment may cost a small percentage, but in the end it assures that the receivable is no longer pending a customer’s action and you are not waiting for a check to clear.
Encourage on-time payments for your receivables with incentives. In my lease agreements, I offered a small discount when tenants paid on time. When they didn’t, they knew the cost would increase and that higher rate was noted in the contract as their standard rent. Late fees were added later when they were even more behind.
Direct debit, or Automated Clearing House (ACH) transfers, have become quite common and are convenient for both your business and that of your customers when recurring payments are required. Some incentives can motivate customers to pre-authorize direct debit withdrawals to fulfill their payment obligations. Not all will agree to it as they may feel it affects their ability to directly control their own cash flow. But some customers may prefer freedom from dealing with one more bill or invoice and the incentives may justify it.
In a similar vein, some gas stations have a cash price and a credit price. The credit price is of course higher to cover the card issuer fees and maybe a little for the station owner’s trouble and delay of cash flow. Many businesses have similar offerings. You may be able to design similar incentives to encourage more immediate cash in your bank account in order to improve cash flow.
Any excesses to convert to cash?
It may be that your business has excess equipment or inventory that could be sold in order to add to the cash on hand. Of course, in-process inventory used to create product is not so easily sold, since additional investment is typically required to produce cash-generating product.
Can you make cash flow king?
There are of course many other cash flow controls, some of which are specific to certain markets or types of businesses. Please let us know in the comments if you are aware of other notable cash flow controls for small- to medium-sized businesses.
Related: Small Business Tax Tips for 2015