Keep the cash ow­ing

Middle East Business (English) - - FRONT PAGE - by Melinda Emer­son Known on US TV and on­line as Smal­lBi­zlady, Melinda reg­u­larly shares her ideas and in­sights with us

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.

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