When it comes to business, nothing can make or break your business faster than cash flow management. Poor cash management or a lack of understanding of cash flow, has seen many, many businesses fail. Despite this knowledge, many business owners still don’t take the time to completely understand, manage and plan their cash flow.
So, how can you improve cash flow for your business? We have some very simple tips to help you with your business cash flow.
Send your invoices
You are not going to get paid until you send your customer’s an invoice. To speed up your cash flow, ensure you send your invoices out as soon as possible. Whether you send them on the 1st of the month or whether you send them as soon as a project is completed, ensure you stay consistent. If you send an invoice on the 28th of the month and you have a client that only pays invoices on the 25th of each month, you could be waiting almost a month to get paid. The sooner you get paid, the better. As they say, it doesn’t count until the money is in the bank.
Raise your prices
When was the last time you increased your service prices? When you’re just starting out, it’s quite normal to charge a little less money in order to be competitive. You may have even underestimated the costs involved with providing your service. With more work coming in, you may find that your services aren’t as profitable as what they should be. Have a look at your pricing strategy and make sure it is in line with your financial goals. If you haven’t increased your prices since you started operating, now might be a good time to review your pricing structure.
Consider working on a retainer
When you’re running a business, there are times when you need to wear a number of different hats during operation. One day you’re wearing the marketing hat, the next you’re in the customer service hat. If you’re not marketing steadily, chances are you could have one week of getting paid quite nicely, then you don’t see any pay for the next month or two. This is where clients who are on a retainer or contract can help with your cash flow. If you’re not already utilising a form of contract for offering your services, now might be a good time to start considering it. By having clients on a contract, you can have some stability and know who exactly will be sticking around and for how long. You also know when you can expect to be receiving funds.
Forecast your cash flow
Depending on your business, there may be low-seasons or times throughout the year that are quieter than others. For some, this might be the colder months. For others, this might be during holiday seasons like Christmas when you’re not in operation. By forecasting your cash flow throughout the year, you’ll be able to be prepared ahead of time. You may be able to keep some funds aside for those times or perhaps you may plan for alternative income streams during this period or alternate sources of funding in order to tide you over.
As well as this, you have a legal responsibility to make sure you aren’t trading whilst insolvent. This is where forecasting your cash flow will help you to predict your future bank balance. Planning for future changes will help you to have a clear idea of where your business will be financially at any given time. Even when applying for bank loans and preparing for the growth of your business can all be made simpler and more efficient with projected cash flow.
Consider sales and marketing efforts
If your business sells products, a quick and easy way to get cash moving in is by holding a sale. An added benefit of this is that you can get rid of old inventory in the process. Not only can you free up some much-needed space, but you can get an increase in your cash flow at a faster rate. Investing in the right marketing efforts can help you to gain brand awareness and therefore, increase sales in a faster manner.
Accept more payment methods
Are you still insisting on accepting the one form of payment? You might want to consider increasing your payment options. Some clients and potential clients may be put off by your lack of payment options. By increasing the number of methods available to clients, you can potentially find more clients, speed up your cash flow and reduce the time you’re taking on paying your own creditors. Consider accepting credit card payments and electronic payments through services such as Square and PayPal and linking this with your accounting software. Boom, clients can pay you at the time they receive the invoice!
Consider up-front payments
Depending on your business and the services you provide, you may be able to ask your new clients for a partial up-front payment. This is especially useful for working on long-term projects. It’s also handy when you don’t know the customer. If you’re working on a large project and the client is unknown, it may be hard to collect payment from them in the event that they don’t want to pay their invoice. It also comes down to your particular industry. Some industries have common practices when it comes to payment terms, so talking with others in your industry could be useful. Implementing an up-front payment policy reduces your exposure to bad debts.
Hire a bookkeeper
When you’re running a business, there is a lot to handle. If you’re not qualified or experienced in finances, doing your own books can take more time than it should. Added to this, you might miss simple mistakes that a bookkeeper would see instantly. Hiring a bookkeeper can help you to spot any potential issues that may get worse over time. While there is software like Xero that is made to make things simple for business owners, a bookkeeper can do so much more for you. They can help give you the visibility on your business’s financial situation to help you make more informed decisions when it comes to spending. Understanding your cash flow and incorporating Xero into other partner apps can help make the overall running of your business so much smoother.
If you want to ensure your business runs as efficiently as possible, taking a look at your finances and your current cash flow is the first step to doing that.
If you’re looking for a Xero bookkeeper in the Brisbane region, don’t hesitate to contact the team at Diverse Business Consultants today.
