Keep the cash owing

If you are already an entrepreneur or small business owner you may already know how unsettling it can be to see how little you have in the bank compared to the expenses you are facing - wages, rent etc. And even if you are considering opening your own business or project this article should help you to face the perennial question: how will I manage my cash flow?

One of the earliest lessons I learned in business was that balance sheets and income statements are fiction; and that cash flow is reality. You must learn quickly that metrics like profits, sales, or net worth don’t impact the day-to-day operations of a company as strongly as cash flow does. But some business owners don’t have a solid grasp of their cash flow, which is problematic – especially as their businesses starts to really hit a stride. If you’re worried that you might be among this group of business owners, then check out these ten ways to manage your cash flow as your business grows.

Stay organised

Know where every invoice, bank statement, and receipt can be found electronically. Invest in digital accounting and filing software so you can access accounts receivable and other categories quickly and easily. Use bookkeeping services to keep your business records reconciled so that you know how much money is on the line each month.

Focus on your monthly net

Determine exactly how much revenue you need to break even, each month and then align your cash flow goals with that in mind. Then prioritise cash flow over profits until your business is consistently in the black.

Structure your expense payments strategically

If your vendor has a net 45-day payment policy, pay the bill on the 44th day. At the same time, negotiate with your customers to pay you electronically. Also, try to encourage early payments from clients by offering a slight discount if they pay quickly.

Focus on your clients’ accounts payables departments

Cultivating AP contacts will make it easier to inquire about unpaid bills. Learn your clients’ payment processing protocols up front so that you can sidestep potential roadblocks when submitting invoices. It’s best to have a named person to call when you are trying to track down your money.

Be your own collection agent

Put someone on your team in charge of collections. You often have to assert yourself if you want to be paid on time. So when an invoice is late, start calling on day 31 and follow up with an email, and keep it up until you get a status update or the money comes in.

Know how to negotiate contracts

If you land a long-term project, feel free to structure a monthly payment or periodic payments within the contract so that you get as much of the money up front as possible. Progression payments are a must! You want fees once certain benchmarks are met – instead of waiting until the end of the project to receive your money.

Be on the lookout for “scope creep”

This will eat profits if you are not careful. If the client repeatedly asks, “Can you do this as well?” don’t agree until you recalculate your costs, and present them with an addendum to the original contract. There’s nothing wrong with charging additional fees for additional work.

Sell off old inventory or equipment

If you have inventory that has been sitting around for a long time, discount it substantially and unload it. The same goes for idle or inefficient equipment. Getting a small amount of money for it is better than nothing.

Lower your loan payments

See if you can renegotiate your monthly bank loan payments to a more favourable interest rate. Even an extra hundred dollars in your pocket each month can go a long way. Ask your bank if they will eliminate or lower any maintenance or service fees on overdraft or lines of credit accounts.

When possible, barter

If you have a graphic design, website person or printer that you do business with if you send them referrals or they need your services too, suggest a bartering arrangement. You get to keep your cash in your pocket, and it could be a win-win for both parties.

And finally, remember...

Ask yourself Why three times before taking on any new expenses. Review all existing expenditures and find unique ways to reduce costs and free up funds to bolster your cash flow. Your goal is to avoid unexpected fiscal hiccups. It’s not glamorous, but it’s a smart approach if you want to maintain your business and increase your profitability over the long term.