Lack of cash, according to some small business consultants, causes more new enterprises to go belly up than any other problem. No business can survive for long without adequate cash flow, yet many new small business owners don’t do enough financial planning to reasonably ensure that their company’s cash flow will remain positive throughout their first year. No matter how well a business is doing in terms of sales and receivables, it can’t survive for long without actual cash in hand to pay suppliers, employees, business taxes, rent, utilities and other overhead costs.
Projecting cash flow is a worthwhile bookkeeping exercise, especially for a business that’s just starting out or for one that’s planning to deplete cash reserves to pay for expansion or capital improvements. Seasonal businesses also need to be mindful of their cash flow patterns in order to devise financial strategies to get them through their slow periods. Cash flow projection spreadsheets are included in many business financial software packages, and some free ones are available online.
A big part of maintaining cash flow is simply ensuring that you’re getting paid what your business is owed. In other words, stay on top of accounts receivable and make sure that customers are paying your invoices on time. Don’t be shy about following up invoices with phone calls to make sure that customers have received them, particularly for larger invoices. Nor should you refrain from making contact to collect on any invoice that remains unpaid even one day beyond your payment terms. The bleak economy has caused many business customers to put off making payments longer than before, but by being the “squeaky wheel” you increase your chances of getting paid first.
Better yet is to reduce the amount of receivables your business creates in the first place. Instituting a “cash-upfront” policy for small purchases may save you from wasting time and effort later on collection efforts for overdue low-dollar invoices. Give customers the option to pay by credit card or ACH transfer whenever you can, even if your business involves performing services at or delivering to the customer’s location. Credit payment devices and software that work with smartphones make it easier than ever for small businesses to accept credit cards. And, of course, use caution when extending credit to businesses or individuals, especially on large orders. Insist on cash payment from those whose credit history suggests that they are bad risks. Many small businesses could have their very existence imperiled by failing to collect on just one large account.
PADGETT BUSINESS SERVICES® provides small business consulting and financial services to help entrepreneurs with their business planning and strategic decision making. Padgett also gives business owners time to focus on the bigger picture by offering small business accounting, tax return preparation and payroll services.
Do you have the support you need to manage your small business bookkeeping?
Schedule a 30-minute appointment to speak with a local small business adviser.