Sometimes, business is so focused on creating products that customers want and marketing those products that they forget the lifeblood of their businesses – cashflow. You may be an entrepreneur with a dream, have unique ideas, and engaged customers but ultimately it’s about having cash in hand. And you need cash to grow and expand.
With bank loans increasingly difficult to obtain, focusing on the cash collection of sales is key to keeping your business running. Businesses that fail to collect on invoices or haven’t prepared for unexpected costs or delays will find it harder to survive. Here are some steps you can use to help keep your business in the money!
1) Create a budget: This critical starting point should include details on both inflow and outflow. For inflow, detail all aspects of the sales cycle. Consider the impact of customer discounts and delinquency rates in your industry. For expected cash outflow, include items like equipment, salaries including payroll taxes and remittances – oft overlooked. Once you’ve outlined your budget, then it’s time to monitor the results to see if you’re staying on track.
2) Use the tools that help save you time and resources: With a variety of programs and apps available, help is available to track and analyze data. Having the right tools will help you understand and track your cashflow throughout the year. While there are lots of free tools, the key is the proper application and implementation. Without the right set up, even the best tool will not give your business the results you expect and need.
3) Require full payment upon work completion: Remember that you can only use that cash once it’s in your hands. It’s important to get it as quickly as possible. Send an invoice within 24 hours and then track it. You may even want to provide discounts to clients who pay within a certain timeframe. Do the opposite with payables—extend the process as long as possible. Of course pay by the due date to avoid penalties or interest but never pay early so you can maximize cashflow.
4) Put a collection process in place: Having a step-by-step process for delinquent accounts goes a long way to collecting the cash from customers. Keep to your policy and don’t deviate from this collection process. Include specific follow-up steps for customers who are late. Provide polite but regular reminders so that payments keep coming in. Have further steps to collect on delinquent accounts such as collection or legal action. Remember to put all accounts on hold as soon as they are past due on any payment.
5) Prepare for unexpected expenses: Put some cash aside for that proverbial “rainy day”. Include contingencies in your budget process, if the cost of an improvement project increases or supplies costs skyrocket, you’ll be ready. Setting up a line of credit at your bank is another smart idea. And it is much easier to get that credit when your business is doing well and you don’t need it. Don’t let unexpected expenses put your business in the red.
Accounting 360 Solutions can help your business run better with advice, support and tools to make your back office run at top efficiency. We’ve provided targeted solutions to small business of all types. Call us today to set up an appointment and begin discussing how we can make a difference to help your company.
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