Are your small business cash flows tight? Do you sometimes
find yourself juggling bills or negotiating for early
payments from customers? You may want to consider trying
these five, sure-fire tips for improving your cash flow:
Tip #1: Invoice Often and Quickly
Perhaps the easiest thing you can do is quickly invoice
customers or clients. Invoicing more quickly means not only
that you get paid more quickly. But invoicing as soon as
you've shipped a product or provided a service often means
you collect more money.
For services, for example, you'll typically find it easier
to bill more for a service if the customer or client still
remembers all the details of your service. Wait a few
weeks, however, and the customer may have forgotten about
the extra work you did or the special service you provided.
Tip #2: Ask for Deposits
Especially if you're working with new customers or clients,
you may want to consider getting an upfront deposit before
beginning work, shipping product, or investing time.
Deposits deliver several cash flow benefits. They get you
part of your payment up front obviously. Upfront deposits
also tend to reduce your bad debts--if only because they
force you to discuss pricing and costs in the beginning.
Finally, deposits tend to scare away bad clients and
customers--the kind of people who only hurt your cash flow
in the long run anyway.
Tip #3: Fire Bad Customers, Vendors and Employees
The subject of bad customers and clients brings up another
cash flow improvement tip.
Almost surely, you've got unprofitable customers, vendors
and employees. By firing these people, you will improve
your cash flow in the long run. You may even improve your
cash flow in the short run.
Think about this.
Tip #4: Reconcile Your Bank Accounts and Implement Other
Internal Controls
You want to know something weird? Small businesses are
regularly victims of employee, customer and vendor theft.
You can't really stop people from trying to steal from you.
But you can do things that let you spot the slime balls
earlier and make their theft more difficult to accomplish.
One of the most important things you should do in this
regard is reconcile your bank account. With accounting
software programs and online banking, the process shouldn't
take more than about thirty minutes a month in many cases.
If you resell inventory, you may also want to reconcile
regularly your accounting records for your most valuable
inventory items with actual physical counts.
Tip #5: Make Sure Products & Services Are Really Profitable
One final point is worth making. As a general rule, small
businesses deliver high rates of return on the owner
capital invested in the business. Probably about 40% on
average. That means, when you stop to think about, that a
small business that's working right should be generating
plenty of cash flow. Enough to pay vendors, employees,
banks and--yes--you.
Now of course even a healthy business sees its cash flows
ebb and flow. But if you're chronically challenged by your
business cash flows, you maybe don't have a cash flow
problem. Rather, your cash flow issues may be symptomatic
of inadequate profit on the products and services you sell.
In this case, what you may need to do re-engineer your
business model so it's more profitable. Once your business
does become more profitable, you should find your cash flow
troubles disappearing.
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Small business CPA Stephen L. Nelson is the author of
QuickBooks for Dummies. He also edits the popular
http://www.llcsexplained.com and
http://www.scorporationsexplained.com web sites.
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