Everybody knows that running a business without cash is extremely challenging. However, what few people know is that some simple tricks can help your cash stick around a bit longer. This might be due to the fact that most people equate profitability with positive cash flow. Don’t get me wrong, being profitable it important but there are many ‘profitable’ companies out there without any money in the bank. As such, here are some cash flow secrets which every business owner should know.
Secret Number 1 – Your Cash Should Work for You
Running a business is not easy, but you shouldn’t have to kill yourself to make ends meet. If you are then your cash is not working for you. One of the simplest ways to achieve this is to talk to your bank to find out what checking account options they have for you. Another great way to make your cash work for you is to deposit your non-essential cash into an interest-bearing account.
Also, look at your payment schedule to see if you can batch them to ensure a higher average daily balance. This will make your business look more attractive when looking for a loan or a line of credit.
In addition, you might also want to look at your payroll system. Not only to make sure you are correctly accounting for everything, but to also make sure the timing of your payroll matches up with the cash cycle of your business. If weekly payroll is not a good fit for your business, then look at the option of bi-monthly or monthly payroll. This would allow you to accrue the cash needed to make payroll over a longer period of time.
Secret Number 2 – Invoicing is Important
Customer finance is one of the easiest ways to create cash flow for your business. I am not talking about raising your prices, but rather how you invoice to make sure you are getting paid on time. In some cases, it might even make sense to offer a slight discount for early payment. While this reduces your profit margin, it helps to make sure you have enough cash flowing through your business.
Regardless of your strategy, you should make invoicing your highest priority. Unfortunately, many small business owners that forget this end up with a stack of unissued invoices. The delay in issuing invoices not only means that it will take you longer to get paid, it also means that your customers will know that invoicing is not important to your business. As such, you need to set clear terms with your customer and make sure you stick to them. If your customers see that invoicing is important to your business, then they will pay attention.
Secret Number 3 – Supplier Financing
This can be cheaper than discounting. Supplier financing is not just about payment terms. It might also include discounts, inventory buybacks, and even consignment. Each option can help you to free up cash which can be used to reinvest in your business. This will allow your business to grow so you can purchase even more materials from your suppliers. As such, this is a win-win for everyone.
It is important to note that you shouldn’t lead a supplier relationship by asking for a discount or 90-day payment terms. Instead, you should develop the relationship over the long-term. Suppliers understand this is business, but they are more likely to work with customers who can also help to grow their business. So, a big part of getting your suppliers to help you is to help them as well.
Secret Number 4 – Have a Money Supplier
Isn’t money the most important raw material for your business? It does not matter if you are a bakery, a dentist’s office, or a small manufacturing company. You need money to pay for materials, rent, and salary. This is called working capital, and from time-to-time, you might need to turn to a lender who could help you meet a shortfall.
While the traditional choice was a bank, an increasing number of small businesses are turning to alternative lenders. The biggest reason is that these lenders can offer access to a working capital loan in less time and with less hassle that a bank. This is important as you don’t want to wait three weeks for the short-term loan you need today. As such, you want to make sure that you have an existing relationship with a lender who can help you when the time comes.