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September 17, 2012 Is your cash flow allowing you to expand and grow your business? Do you find yourself delaying payments to your vendors to "make ends meet" every month? Are you coming up short for payroll and having to tap equity lines or borrow money to pay your employees? For all small businesses, the major reason for failure is the lack of cash. And if you're looking for a quick fix to cash flow problems, good luck.
Small business owners are always looking for ways to squeeze as much cash out of their existing operations. Collecting receivables as fast as possible, and slowing down your payables without jeopardizing your relationship with suppliers, is a simple high-level formula for doing this. But most small business owners don't leverage the many other options they have.
The first step in improving cash flow starts with getting an accurate understanding of where your current cash flow stands, and what the future projections of cash flow will be. Having a "rolling" 12-month forecast of your cash flow is a best practice for most small businesses. As a small business owner, this provides you with a month-by-month view of cash flow and will allow you to make better decisions on how to manage it.
If you are having trouble with cash flow, evaluate your terms. This includes your payment terms with the vendors and suppliers you work with, and also your payment terms with your customers. Part of this process includes gaining an understanding of the terms of other potential vendors, and also what your competitor's terms are. If you can get better terms from another vendor, than this can potentially be used to negotiate better terms with a current supplier.
As it relates to your customers, it's a must to have a good collection system in place. This starts with ensuring your customers fully understand your terms and also that you are providing timely and accurate invoices. Keep in mind, your customers are probably trying to manage their cash flow too, so negotiating a win-win situation could be good for you, and them. Offering your customers a discount for paying their invoice before the due date may be a great option to consider.
Having a cash flow system in place which allow you to bill early and often, make collection calls to those who are delinquent, and offer payment options will help improve your receivables. Negotiating vendor terms, controlling your inventory, using credit cards wisely to "float" payments, and renegotiating bank loans will help with your payables.
Cash is king in small businesses, and managing cash flow is an essential ingredient to successfully growing your business. Having a plan, forecast, and managing cash flow on a daily basis will ultimately provide you with a better growth model.
Tags: Business News
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