Many small businesses fail because of poor cash flow management. They are unable to reach their potential because they spend too much, have small or no profit margins, they mismanage their resources, and fail to create an emergency fund. As an entrepreneur, you can avoid all these, if you only know how to manage your business’ cash flow. Good cash flow provides you with the financial flexibility to not just survive in your niche, but also thrive.
These are effective cash flow management practices you can implement to thrive in your niche.
Frequent Cash Flow Analysis
Manage the cash flow of your small business effectively by conducting regular analyses. Doing so allows you to monitor the finances of your company, identify where your cash goes, and determine which aspects of your business need more cash. You can conduct an analysis on a monthly, quarterly, or weekly basis. The schedule of this depends on you and your business objectives. Invest in accounting software to make analysing your finances easier.
Cash Flow Forecasting
A forecast provides you with a glimpse of the possible sales and revenue figures of your small business. It also allows you to project cash flow and help you manage your company’s finances. To make a forecast, you should store data from previous months or years, depending on how long your business has been in your niche. Previous figures enable you to create a realistic forecast because you have a basis for comparison. It also allows you to prepare a budget and allocate resources for product development and marketing. You can then plan for the expansion of your small business into a new location or a different market.
After forecasting and analysing your financial situation, you will be able to identify which aspects of your operations are costly. You can then decide to reduce expenses to improve your cash flow. Remove unnecessary expenses from your budget so that you can allocate resources to profitable projects and tasks. Consider removing redundant tasks and processes, simplify or automate some of the work your employees do and outsource some tasks to improve productivity and efficiency.
Incentives for Early Payment
Late payments have a negative effect on your cash flow. This may limit your financial flexibility in investing in and growing your small business. To avert this problem, incentivise early payment. Provide customers with discounts or other benefits whenever they pay early. This approach keeps your cash flow at the level you want it.
Simplify Payment Schemes
Other than providing incentives, you can make customers pay faster by simplifying your payment schemes. Include a ‘pay now’ option in the invoice you send to customers through email. They do not have to leave their email or simply return to it when they want to pay. Another option to consider is allowing them to pay in installments. If you provide this option, add interest to the principal amount.
Automated Reminders for Payments
Some of your customers may have lost your invoice in their email or their pile of documents. These might cause them to forget to pay on time. Create automated payment reminders and schedule these as an invoice is closer to its due date. Regular reminders keep your customers informed about their dues.
These cash flow management practices provide you with financial flexibility as you plan to grow your small business. Implement these to get the results you want. We at Robookkeeper can provide you with affordable small business accounting services. We have a team of experienced and skilled freelance bookkeepers that can update your books while you focus on growing your company.