When running a small business, the details matter more than ever – they can make or break its success!
Cash flow management is one of the key details to consider. A healthy cash flow allows you to meet all of your financial obligations while remaining flexible enough to pursue new opportunities.
1. Keep track of your cash
If you run a small business, knowing your cash flow can help inform decisions regarding its improvement or even planning for potential emergencies.
Companies often fail because their owners lack an accurate picture of how their finances work – from customer purchases and payments coming in through customer accounts, through to expenses being covered and expenses coming out again as expenses for expenses such as marketing and administration expenses being incurred by their company.
Some businesses may also have accounts receivable (customers who owe you money) and investments they need to track, which you can do using a spreadsheet or by hiring an accountant.
Once you have an idea of your current and projected cash flows, it is time to create a cash flow projection template. This will enable you to enter all revenue and expenses accurately to achieve an accurate snapshot of your finances.
2. Lease rather than buy
Cash management can be a difficult challenge for all types of businesses. Through careful planning, however, you can effectively forecast your needs and expenses to maintain control of your finances. One effective method for staying ahead is keeping a tab on how much cash is in the bank at any given time; there are other techniques available too that can improve your bottom line.
Lease instead of buy: office leasing could save money and give more flexibility in how you run your business, as you may be able to negotiate shorter initial lease terms and reduced rent payments with your landlord, eliminating the hassle and stress of trying to renegotiate contracts if something doesn’t satisfy. In addition, leasing allows businesses to move to new locations more easily and with fewer hassles.
3. Offer early payment discounts
Early payment discounts can help motivate customers to pay you sooner while also shortening the time you spend chasing up past-due invoices.
However, you must carefully choose which customers to offer early payment discounts to and make sure the terms don’t place undue pressure on those who pay late. Only offer these discounts to those customers with an established record of paying their bills on time.
Your discount offerings depend on your business needs and goals; fixed and dynamic early payment discounts are two common types of prompt payment discounts.
Fixed discounts outline their terms clearly on an invoice so customers know exactly how much money they could save by paying early. With dynamic discounting, buyer and seller can negotiate their own terms without being bound to an exclusive discount rate and time frame.
Cash management is essential to the success of any business. Managing it allows you to determine if there’s enough money available to pay bills and invest in new opportunities.
One way of effectively managing your cash is negotiating better payment terms with suppliers and vendors. For example, if a typical domestic supplier requires net 30 day terms for payments, perhaps negotiating net 45-60 instead can help save you money and maintain strong growth of your business.
Negotiating for better terms might take some research and preparation, but the payoff could be greater happiness with suppliers as well as increased profitability for your company.
For optimal results, engage in negotiations over a period of time. This could involve phone calls or emails; just make sure to follow up with a written letter explaining what has transpired and your intentions.