Cash is the lifeblood of a business and in my experience, one of the most common reasons companies go out of business is cash flow mismanagement.
The best time to plan for a cash shortfall is when you’re not facing one and every business should have a “Plan B” to fall back on. After the year we’ve all been through, you may feel like the situation is out of your control. There are ways you can better manage your cash flow. Here are a few.
1. Monitor and Document the Process
You can’t manage, improve or increase your cash flow unless you keep track of it. Using a cloud-based accounting system like Quickbooks online makes it easier to stay on top of your cash flow. The key is to use your accounting system to record client invoices and vendor bills as they occur, not just in response to cash in or out of your bank account. Without the receivable and payables being entered it will be difficult to project cash flow.
You should project cash flow every month and create a rolling 12-month forecast. In tough times, if you’re worried about making payroll, for example, should do this weekly. Then, depending on your current situation, compare your cash flow projections to your actual cash flow statement and adjust your projections accordingly.
2. Examine Your Payment Process
Can you ask clients/customers to pay an initial upfront deposit and the rest when you complete the project? If the project is large, consider dividing it into stages and bill for partial payment upon completion of each step. At My Fiscal Office we bill our business clients a monthly fee which includes tax return to smooth out cash flow through the year. Ask yourself can your services become a ‘subscription’ model?
3. Be Smart with Debt
Business lines of credit are great to fall back on if you do encounter a cash flow crunch. You don’t pay anything until you use the money.
If you owe money now, talk to your lenders. You may be able to negotiate for a lower interest rate or extended payment terms, which can help boost your cash flow. Many lending institutions have created special programs during the COVID-19 pandemic to help struggling businesses hang on.
Having a rewards business credit card can boost and increase your cash flow by allowing you to pay for purchases with the points or miles you’ve earned. And of course, look for cards with low-interest rates and annual fees.
4. Don’t Let Business Equipment and Inventory Be a Cash Hog
Do you have equipment you no longer need? Think about selling it to help increase your cash flow. Depending on your industry, you may be able to generate cash flow by selling your equipment on Amazon or eBay.
If you’re in the market for new equipment, technology, or a company vehicle, consider leasing it instead of purchasing it outright. That way you get what you need without outlaying a lot of cash up-front.
Are you a retailer or wholesaler with extra inventory? Don’t store it or let it take up valuable floor space. Have a clearance sale, both in-store and online. If you’re still stuck with products, contact a liquidator. You won’t get a lot of money, but something is better than nothing. Or donate leftover merchandise to a charity or other nonprofit. You won’t earn money but check with your accountant to see if you can get a tax write-off.
5. Check Your Pricing
When’s the last time you raised your prices? Before you do, check the prices your competitors are offering. Are you in line with those, or have you been too worried about market conditions to raise prices?
There are segments of the economy that are still booming. Depending on who you sell to and what you sell, you may be able to charge more and not lose any business.
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My Fiscal Office LLC
77 Bleecker Street
New York, NY 10012