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Cash flow is the lifeblood of any business. While many small business owners are concentrating on the bottom line (Net Income), few are paying close enough attention to cash flow, and that can have dire consequences for running a small business.
For example, Marc owns a landscaping business. He had a killer month last month, $20,000 thanks to a big corporate client! Marc's Net Income is twice what it usually is, so he decides this would be a good time to pay off the $10,000 balance on his Business AMEX (which he has been meaning to do for the last 2 months). Afterward making the payment, Marc goes to his Quickbooks Online Workers panel to process the $4,000 payroll, but he doesn't have enough cash in the bank. WTF?
What Marc didn't realize is his Profit & Loss statement was shown on an accrual basis, and while $20,000 in sales were booked, the customer hadn't paid their invoice yet. This is where looking at the Cash Flow Statement could have helped Marc. So how can businesses avoid this trap an increase their cash flow?
1. Enable Credit Card Payments
For some small businesses, every penny is worth saving, so a 3% credit card fee seems like a waste. However, what you are really paying for is instantaneous cash. Letting people pay as soon as they can by whatever method they want will reduce your A/R balances and get that cash in faster.
2. Automatic Reoccuring Billing
If you're a service-based business with a monthly fee, ask your customers to allow you to bill them automatically every month. Perhaps they get a small discount or a promotional item for doing so.
3. Put it on a 0% APR credit card.
I get offers in the mail all the time for 0% interest credit cards for 18 months (then some ridiculous rate like 24% APR after). I use these cards to make large investment purchases. In our example above, Marc could use this as a way to finance new equipment. Schedule your monthly payments so the balance is paid just before the promotional period ends.
4. Liquidate Slow Moving Inventory
Do you have products on your shelves that are just collecting dust? Think of those as containers full of money, that you can't have until you sell them. Mark them down, move them out, and maybe use the cash to purchase more of your best-seller.
5. Be Wary of Buying Inventory in Bulk
Yes, a 5% discount when you buy 1,000 units instead of 100 may be tempting, but remember that money is tied up until it all sells. Look at your Cash Flow statement and determine if its worth giving up all that cash.
Do you need help getting more cash flow into your business. Contact us here.