As a business owner, you’re certainly familiar with the integral importance of maintaining a healthy cash flow. After all, cash flow practically operates as the lifeblood for your business, featuring vital financial components like your revenue and accounts receivable payments from important parties like customers and vendors. To turn a profit and effectively operate your business, you’ll need working capital in your cash flow in order to do so. Yet, as important as something like sufficient cash flow is, many business owners – especially small business owners – struggle to really maintain a healthy, thriving cash flow. Well, that’s why small business lending companies like The Commercial Finance Group exist!
Waiting On Payments? CFG Can Help You
Times can be tough if you’re waiting on payments from vendors or customers to come through, and often times the process can seem like it takes forever. What our Atlanta, Burbank and Los Angeles offices specialize in is lending you additional capital that you need to finance various operations like product acquisition, materials, resources, labor – whatever you need to continue growing and successfully run your business. Without worrying about things like credit history to get in the way of getting the capital you need, we look at alternate loan collateral like your assets (in the form of your accounts receivable invoices) to determine a small business’ eligibility for a given loan. Learn more about our rather unique approach to small business lending here.
Today, we’re going to go over some handy tips to “be the boss” of your cash flow. While people have a great idea or product and they’re quick to start a business in order to sell it in our wonderful free market economy, what they often don’t understand is how a business’ cash flow actually works. Let’s take a look at these cash flow management tips.
Why Is Cash Flow So Important?
We constantly talk about the cash flow of businesses, and for good reason. That’s because, as we briefly mentioned above, cash flow is the lifeline of all businesses, meaning that properly managing it is absolutely vital to determine how much cash you company has, and also, how much cash it needs. Your cash flow also provides insights into where you get your money, how you spend your money, and the extent to which your expenses affect growth potential.
Plan For The Future: Create A Forecast
Weather determines how we dress and the time we spend outdoors, and to help plan around the weather, we frequently check the weather forecast. Well, managing your cash flow is similar to anticipating and predicting the weather. A cash flow forecast will help you predict your annual profits versus your end-of-year debt, and it will also give you insight into where you’re making the most money and where there’s still outstanding revenue. So, by organizing all monthly costs such as sales, credit, and funding ahead of time, you can easily set financial goals and also project future cash flow expenditures. It’s all about planning ahead.
Don’t Delay Invoicing
Procrastination might have its place when it comes to writing a paper in college, but when it comes to invoicing, it’s a good idea to take care of those as soon as you can. In other words, don’t leave invoicing until the very end of the month. Instead, invoice as soon as the job is completed in order to speed up the overall payment process, as this will help significantly improve your cash flow.
Issue your invoices in a timely manner, and if payments are coming in slowly, follow up with your vendors, customers, or whoever is responsible for paying a certain invoice. The main point to take away here is that if you delay invoicing, your payments will also be delayed, which can jeopardize your cash flow goals.
Focus On Improving Your Receivables
You can work to boost your cash flow by speeding up the time it takes to turn receivables into much-needed cash for your small business. As an example, you can do things like offer discounts to customers who pay their bills quickly, require credit checks, and set up convenient, online payment methods. By tracking accounts receivable, you can take immediate action with slow-paying customers as we mentioned above. In general, the way you manage your A/R has a huge impact on the health of your cash flow.
Pay Close Attention To Your Payables
Quality financial management often requires being overly meticulous and thorough, but that’s just a part of running a business. Examine your costs very carefully, and do so especially when your expenses are rising faster than your sales are. Spend the cash that you do have wisely and try to make payments electronically. Additionally, you should give thought to things like vendor discounts or low supplier costs. Sometimes flexible payment terms, as opposed to cheaper terms, can actually improve your cash flow in the big picture.
Calculate Your Burn Rate
Your burn rate, or the rate at which your enterprise spends money in excess of income, is another important consideration for your cash flow. To do this, you’ll need to determine exactly how much capital you go through every month, including the costs that keep your business afloat when you’re not actually producing any revenue.
By staying on top of your burn rate, you’ll get insights into when your business will run out of money and when it will break even and therefore start to make a profit.
(Always) Know Your Bank Balance
By ‘knowing your bank balance,’ we mean more than just checking an account online. For your small business, your bank account also includes transactions that have not yet gone into the bank, in addition to payments that have not yet cleared. Consider this the best practice for checking your business bank account: Deduct any further payments made from the previous month’s balance to determine the actual amount of cash that you have.
Know Your Customer, And Know Them Well
Before you deal with customers, don’t always assume that the only thing they’re good for is their money. Before agreeing to monetary exchanges, do some research like making basic online checks, speak to other suppliers, and also use a credit reference agency to ensure that the customer can actually afford to pay you.
Additionally, be familiar with your customer’s invoice process to speed up invoicing on their end. If the customer needs certain information from you, provide it as soon as you can. After all, not knowing this information will only create more delays in receiving the money that your business needs.
Monitor Your Assets
What do we mean by monitoring your assets? Well, excess assets can reduce your cash reserves and consequently create a strain on your ability to pay unanticipated expenses. Here’s how you can free up some additional cash for a fast improvement in your flow: Monitor all of your ordering, analyze your sales patterns, examine and forecast your relevant inventory, evaluate current suppliers, and if possible, identify potential alternatives.
Make Sure Payment Terms Are Clear
Communication is everything – be thorough and spell out payment terms on every invoice so they’re as clear as possible. Include a specific due date on the invoice so that it clearly communicates your expectations, enforces late fees, and also uses positive incentives for early payments (like we mentioned above). By giving customers a good reason to pay on time, or even early, this will help support your incoming cash flow.
Understand Your Cash Position Trend
Consider these kinds of questions when it comes to your cash flow:
- Have you been bringing in sufficient revenue (especially through new bookings) to keep your cash flow high?
- Are your expenses rising too fast for incoming cash to keep up?
These are the thoughts that will help you track your cash balance over time so that you can tell if you’re in danger of running out of cash or not. Also, make sure that you know your gross margins for every type of product and avoid making any kind of large orders before checking that you have enough cash flow. These kinds of small steps will help ensure that you have the requisite cash that’s available to effectively and efficiently run your small business.
The Commercial Finance Group Makes Cash Flow Easy
If you’re still following the best practices with your small business cash flow and you’re still strapped for working capital due to rapid increase in demand or other reasons, our finance factoring services can help! In fact, asset-based loans and cash flow lending solutions are what we specialize in. We believe that no business should be held back to a lack of funds. Questions? Reach out to The Commercial Finance Group now!
