August 11, 2020

a few Ways to Beat the Small Business Income Crunch

What do 90% of business failures have got in common?

Lack of cash.

Cash can be king. According to Dun and Bradstreet, 90% of business failures take place because of poor cash flow. In today’s vulnerable economy, maintaining a strong positive income for your small business is more important than ever before.

Cash Flow Basics for Small Business
Well, duh, right? Any high school economics student can tell you positive cash flow is important to a small business. But knowing about cash flow and keeping a positive cash flow for your business are 2 different things. So what do you need to consider when it comes to your business’ cash flow? Three factors affect cash flow:

– Accounts Receivable (cash flowing into your business)
: Accounts Payable (cash flowing out of your business)
– Overhead Expenses (a subset of accounts payable)

In this article I give you three ways to boost the cash flow into your business.

3 Ways to Increase Cash Flow into Your Business
In case you accounts receivable records look good, your business cash flow should be good, right? Incorrect. A positive accounts receivable column just helps your business if you can convert your own receivables to cash. Your company accounts receivable is a listing of bad debts to your company. But being due and having cash in hand are usually two different things. So how do you turn accounts receivable into cash quicker for your small business?

1 . Bill Quickly and Accurately
Another “Duh! ” suggestion, but you might be surprised at how many small business owners are guilty of neglecting regular and prompt billing, viewing it as another paperwork hassle that will goes on the back burner. If your small business doesn’t bill promptly, start now. Assign a worker to handle this task if necessary. When focusing on long-term projects, arrange to expenses monthly for work-in-progress and ask for a deposit before you start the project. Also, be very careful and detailed inside your billing. Nothing strains a good method of trading like billing errors. Review your expenses for errors and omissions just before sending them out.

2 . Prevent Slow or No-Pay Clients
You might be amazed at the kinds of clients who are slow to pay, or totally delinquent. According to Dun and Bradstreet, the particular worst slow-pay offenders are large businesses, those with 500 employees or even more. On average, these businesses take 62. 7 days to pay up, more than 4 weeks past normal 30-day terms. Here’s the other shocker: the most common no-pay offenders are clients who owe $500 or less. Apparently, these clients believe that this amount of cash is insignificant, and do not feel guilty about not spending up.

Before you take on a new client or extend credit to a customer, do your homework. You can do a credit check on all new clients using an outside agency, or request credit references and do your own checking.
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Another option is to call other businesses that do business with your client to learn whether the client pays on time. If the potential client turns out to be the slow/no pay type, don’t take them on. In slim economic times it may seem crazy not to accept all the business you can get, but clients who don’t pay up can seriously and negatively influence your cash flow. Not only will you wait endlessly to get paid for goods and services currently delivered, but you will also spend a lot of internal resources tracking delinquent balances and chasing your cash. The best plan is: “Just say no! inch

3. Plan for Fast Cash
You will find two ways to get your clients to pay upward sooner. First, you can negotiate brief payment terms when you contract with a client. These days, many small businesses are asking for and getting “net 15? conditions. See which if your clients could be open to these terms. Second, should you be not comfortable asking for “net 15? terms, you can offer clients a price cut for early payment. Offer an one to two percent discount for paying within 10 days. While you’ll be losing just a little cash to the discount, you’re general cash balance will be a lot much healthier.

These three simple strategies for cash flow management can be the difference between your small business operating in the black or getting one of the business in the 90% failing bracket.

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