Ah, cash flow. Is there anything more terrifying or essential to a small business’s survival? Manage it well, and you won’t just feel amazing, you and your business will be. Manage it poorly, and the last business-related sounds you may ever hear are the sounds of your own tears being drowned out by the repo man’s engine as he pulls up to your office to repossess the furniture you leased. Don’t manage it poorly. Stay ahead of any cash flow problems with these five tips.
1. Don’t Count Your Chickens Until They Hatch
It can be very tempting during lean times to believe that the client who has always paid you on time will continue to do so. Why not go ahead and send that check out? The money from your client should be in the bank by the time the vendor cashes it, right? Wrong. Don’t count your chickens in the cash department until they’ve hatched. Not only do you risk alienating a valuable vendor, but the charges and fees you’ll accrue if the money doesn’t come in will only make your cash flow problems worse. Instead of crossing your fingers and relying on an unknown future to go the way you hope it will, look into what will be required to get a bank loan or line of credit before you need one. You should also have a credit card for small business needs. While credit cards can create their own problems if managed inappropriately, they can also fill in necessary gaps from time to time.
2. Get a Deposit
Even if you’ve worked with a particular client for years, when jobs are especially large or hairy, it’s best to get a deposit upfront so you can give yourself a little cushion to survive an extended period of work on a project. The fact that you’re gong to make a killing in six months is no comfort when you need to pay the electricity today. Get a deposit on jobs that will lighten cash flow for a period of time, and keep paying yourself, your employees, and everybody else who keeps you in business.
3. Know Who Really Has to Be Paid
Many small-business owners are excellent managers of their own finances — it’s one of their many good qualities that gave them the confidence to take a risk and go into business for themselves in the first place. Because of their positive history in managing their own finances, however, many small-business owners approach their business finances with the same rigor and practices they’ve applied to their own finances. On the surface, that seems like an excellent idea. In practice, however, it can be disastrous. Just because you’re used to always paying a personal bill the day it arrives doesn’t mean your business has to take the same approach. Is the due date 30 days out? 60? Be wise about who you actually have to pay and when since doing so can mean the difference between making payroll or not. Oh, and your employees always have to be paid.
4. DO NOT Use Tax Money
All that money you’re setting aside for sales and use tax, quarterly taxes and the like needs to be treated as if it doesn’t exist. For small businesses in a cash flow pickle, however, that can feel like madness. After all, what’s the harm in borrowing from the tax stash if you pay it back in time? None, provided you pay it back in time.
But learning to cover your cash flow troubles with tax money that absolutely has to go to the government isn’t going to solve your cash flow troubles. It will, at best, buy you some time, and, at worst, get you in serious trouble with Uncle Sam. Resist this temptation at all times and all costs. It just isn’t worth the risk.
5. Incentivize Getting Paid
When you’re a small-business owner, it can sometimes seem like everybody who owes you money is suffering the same cash flow concerns you are. One way to tackle this problem is to incentivize getting paid. If a client gets a 10 percent discount for paying early, they’ll definitely be more inclined to do so. After all, that will save them money and help solve any cash flow worries they’re currently embroiled in themselves. If you can’t offer lower prices as an incentive, offer a discount or special service on future work when cash is delivered early and on-time.
From incentivizing getting paid to letting the future remain unknown and uncounted-on, follow these five tips to stay ahead of cash flow trouble in your small business.