One of the common challenges small business owners face is cash flow and, in particular, the unpredictability that can result from slow or late paying customers.
Small businesses often have little to no reserve. For them, cash flow is an ongoing concern that needs to be managed directly. If you consider that cash flow is the lifeblood of any business, it is easy to see why it is not something you want left to chance.
These six strategies can help you close the gap and stay on top of your business’ cash flow:
1. Understand the unpaid invoice
Every outstanding invoice is money not in your pocket and money that, in theory, may never come in. If you have more than one unpaid invoice, it is important to understand whether something in your invoicing practice may be the cause. Are you invoicing clients immediately after work is done or do you set it aside? Do you mail or email invoices? Are you limiting the ways customers can pay so they have to wait until they have time to process a bank transfer?
All of these issues can be addressed simply by moving to a digital app for invoicing, like Invoice2go. The ability to create and send an invoice directly from your phone or tablet means it is into your customer’s hands faster, and more likely to be top of mind for payment. Most of these apps are equipped with options for a variety of payments to allow customers the convenience to pay the way they want, making the process more accessible.
2. Know the ebbs and flows of your business
Having an idea of when you can expect business to come in can help you better manage cash flow, and help you plan marketing strategies to make up for the slower times. Take a look at two to three years of your business’s sales and expenses to better understand when the money is coming in, and when it typically goes out. Plan marketing campaigns to either draw in more business during slower times, perhaps with incentives for booking a seasonal activity early, or with promotions to draw in more revenue during busy times. Even if it requires a little additional seasonal support, it can be worthwhile to bolster income in your busy season.
3. Adjust your spending accordingly
Those natural ebbs and flows in your business should influence your spending decisions, While it may be tempting to save money by buying or investing in equipment when it’s on sale, or by taking advantage of a special advertising promotion, doing so at a time when your cash flow is low could do your business more harm than good. For the year ahead, understand when you will have money to spare, and when money will be tight, and plan your spending accordingly.
4. Establish an emergency cash fund
While it can be difficult as a small business to have a large cash reserve, it is worthwhile to set aside a small emergency cash fund to cover a few month’s worth of critical expenses, just in case. Depending on your set up, it may mean having just enough to cover rent, wages and utilities. Take a look at what you cannot do without for a period of a few months, what the cost is, and be sure you have enough on hand to carry you through, just in case something happens.
5. Remember to value existing customers
While your business requires new clients in order to grow, it is important not to forget your existing customers, both for the repeat business they may provide and the referrals they generate. By doing a job well, ensuring the customer is satisfied from beginning to end, and then nurturing these existing relationships with efficient invoicing, follow up, and quick service, you ensure a satisfied client. Keep in mind that there may be reasons to connect throughout the year – with reminders about seasonal changes for instance, and less task focused reasons such as an end of year ‘thank you for your business this year.’
6. Take stock of your assets
As a business evolves, it will naturally acquire assets – materials, equipment and so on – that are needed at the time but then are outgrown. Remember that these unused assets may have cash value and are worth selling to bring income into the business, perhaps to fund the cash reserve you know you need. Take stock of what you have, what you use, and what you will likely never require again and put those old assets to work for you.
Take the time to address cash flow issues before they become problems and your business, and peace of mind, will be the better for it.
Chris Strode is the founder of Invoice2go.