Table of Contents
- 1. Look for Ways to Cut Costs
- 2. Set a Firm Budget
- 3. Get Rid of Equipment You Don’t Use
- 4. Stay on Top of Outstanding Invoices
- 5. Encourage Clients to Pay Faster
- 6. Review Your Inventory Often
- 7. Pay Down Your Existing Debts
- 8. Hire an Experienced Accountant
- 9. Keep Tabs on Your Projected Earnings
- 10. Ask Employees to Use Direct Deposit
- Implement These Cash Flow Management Tips
Every year, more than 627,000 small businesses open for the first time. Those small businesses operate in different industries, but no matter what they do, every business owner has to worry about cash flow management.
Without the right processes in place, your business won’t be able to grow. Worse, you could end up spending more money on basic necessities than you really should.
For most new business owners, figuring out how to maximize their cash flow can feel like a complete mystery. Here are a few simple tips to make managing cash flow easy.
1. Look for Ways to Cut Costs
The easiest way to improve your cash flow is to reduce your regular expenses every month. Look at the amount of money you’re spending on fixed costs. These could be your building’s rent, utilities, labor costs, and anything else that recurs each month.
Write down those expenses and see if there are costs you can reduce. For example, you may be able to lower your electricity costs by replacing your light bulbs with LED bulbs or decrease your internet expenses by asking for a discount with your service provider.
Every cent counts here and the more you can cut your expenses month after month, the more money you’ll free up for your business. Keep in mind that you don’t want to cut your costs so much that it makes it tough to run your business. Just cut expenses where you can, as you can.
You may find it useful to review your expenses once every quarter and make adjustments on the fly.
2. Set a Firm Budget
After reviewing your regular expenses and finding ways to cut costs, establish a firm budget that your company can rely on each month. This budget should account for your regular expenses like utilities, labor, inventory purchases, and building maintenance.
You should also include savings for your business in the budget so you can hedge against unexpected costs.
Make sure your entire management team is aware of the budget and do what you can to stick to those numbers as closely as possible. When you’re constantly monitoring your budget while also cutting your regular expenses, you’ll be better equipped to make the most of your small business cash flow management strategy.
3. Get Rid of Equipment You Don’t Use
As your business grows and develops, you’ll find that some of the equipment and tools you thought you needed are no longer helpful. Leaving those items in storage or letting them take up space in your building won’t help your business. Worse, it can put strain on your budget and your ability to increase your available inventory.
Instead, try to sell the equipment you’re not using or that no longer serves the needs of your company. Other companies in your industry will almost always be on the lookout for lightly used equipment and will pay you to take it off your hands.
Just make sure you price the equipment the right way. Charging the same price you paid when you bought the equipment is the easiest way to turn prospective buyers away. If you’re not sure what your equipment is worth, consider getting the equipment appraised by a professional.
4. Stay on Top of Outstanding Invoices
If you invoice clients for your services or products, you have to wait for them to pay those invoices before you receive your money. Though many clients pay invoices quickly, others take their time.
The longer those clients take to pay you, the more your cash flow suffers.
Instead of letting those late invoices slide and accepting that some clients pay late, be proactive. Call your clients and find out what’s going on with their payments.
If they have a good reason for the delay, you’re free to be flexible. In most cases, clients pay invoices late because they forgot or misplaced the invoice by accident. When you remind them, they’ll typically pay what’s owed as soon as they can.
However, if they have no excuse other than that they don’t feel like paying, you may want to send them to collections.
The more proactive you can be about chasing down those outstanding invoices, the more money you’ll have in your bank account.
5. Encourage Clients to Pay Faster
If you don’t like the idea of chasing after customers and making sure they pay invoices on time, you’ll want to find a way to encourage them to pay on time on their own. The easiest way to do this is to offer a small discount on future orders if they pay by a certain deadline.
Give your clients a discount code that they can use when they make purchases in the future. This way, your billing software can calculate the amount they owe when they place an order.
You’re free to offer the promotion according to your terms. If you want to reward customers for faster payments every time so you can get the money you need, offer the promotion for every invoice. It’s up to you to decide what will work best for your business.
6. Review Your Inventory Often
Your inventory may be what drives your business and makes it possible for you to make money in the first place. However, there will always be items that sell less often or don’t sell at all. Those items can make managing your cash flow harder.
Review your inventory and your sales at least once every quarter. Look for items that are selling fast and invest more money in acquiring those items so you can continue to meet demand easily. If you notice items that sit for months on end or don’t move fast enough, consider getting rid of them.
Replace those slow-moving items with inventory that you can sell faster. This will increase the amount of money you bring in each quarter while ensuring that your inventory gets refreshed often.
7. Pay Down Your Existing Debts
One of the biggest problems businesses have with cash flow management comes from outstanding debts. Those debts eat up money every month until they get paid off in full. The longer you carry those debts, the more interest you’ll pay, further reducing the amount of money you have at your disposal.
Instead of making the minimum monthly payments until you get rid of your debt, try to pay off more each month. Even paying $10 above the minimum payment will help chip away at your outstanding debt.
The sooner you can pay it off, the sooner you’ll free up money that you can better use to invest in your business.
8. Hire an Experienced Accountant
Though it might seem simple enough to handle your own accounting and bookkeeping throughout the year, it’s almost always best to leave it to an experienced professional. According to the experts at Clickandmortaraccounting.com, professional accountants can save you money on your business’s tax liability.
They understand the tax code and can find deductions you might not know exist in the first place. The more deductions you can take advantage of, the less you’ll owe the IRS at the end of the year.
Even better, they’ll be able to help you handle the filing process so you won’t have to worry about missing deadlines. That means fewer fines and fees and less stress for you while you run your business.
9. Keep Tabs on Your Projected Earnings
Every company should have a general idea of what they’ll earn each quarter based on previous years. This projection is a wonderful way to figure out where your cash flow will be at each part of the year.
Keep an eye on your projected earnings and review your performance often. If you notice that sales are behind or you’re not coming close to where you want to be, make the necessary changes. Advertise aggressively, find ways to reach out to existing clients and encourage new business, and do what you can to bring traffic in.
The more closely you monitor your company’s performance, the better equipped you’ll be to keep things on track for the rest of the year.
10. Ask Employees to Use Direct Deposit
Cutting traditional paychecks can get expensive fast. You have to cover the cost of paper, printer toner, and spend time making sure each paycheck gets printed without errors.
This takes time and money away from the rest of your operation.
If possible, ask your employees to switch from paper checks to direct deposit. This will get rid of the hassle of check printing and will save you money on office supplies. Even better, your employees will get their money more quickly and won’t have to worry about heading to the bank to make a deposit.
Implement These Cash Flow Management Tips
You’re in business to make money, but without a good cash flow management strategy in place, you won’t be able to make use of the money you bring in. Keep these tips in mind and your business will be on the right track from the very beginning.
As you grow, review how you’re managing your company’s cash flow each quarter and make changes as you go. This way, you’ll be able to keep your cash flow positive.
Looking for more tips and tricks to help you grow your business? Check out our latest posts.