There are numerous ways to kill your business, from poor branding strategies to low-quality customer services. Still, research says that most companies fail due to serious financial problems. While 82% of these businesses experience cash flow problems, 29% of them run out of cash.
This is definitely something you want to avoid. Here are a few strategies that may help you manage your money and avoid bankruptcy.
Learn the Basics of Money Management
Just because you’ve hired an accountant or invested in killer accounting software doesn’t mean you can now kick back and relax. You still need to understand your major metrics and be able to read your bank statements to stay on top of your money management.
In other words, you need to learn the basics of accounting. There is a wide range of amazing online accounting courses for beginners that may help you, such as the Introduction to Small Business Accounting Training Tutorial or Fundamentals of Accounting. With these courses, you will familiarize yourself with the different aspects of accounting and understand the industry jargon.
By learning how to track your cash flow, you will be able to make wiser investments, predict future financial problems, choose the right funding methods, and grow your business successfully.
Manage Late Invoices Effectively
Research shows that more than 64% of small businesses face the problem of outstanding invoice payments. Late payments may create gaps in your current cash flow and impact the overall performance of your business.
First off, you need to make sure that your current late invoices don’t hurt your bottom line. Instead of bank loans that may compromise your business’ cash flow in the long run, choose safer funding solutions designed specifically to help businesses with late invoices. For example, you could leverage debtor finance, which is basically a line of credit secured by your accounts receivable. Namely, you invoice a client, send the invoice to the debtor finance company, and they usually pay you 80% the sum within 24 hours. Once a client pays the invoice in full, you will be paid the rest.
Encourage your Customers to Make Timely Payments
Debt finance and similar funding options are short-term solutions. However, to resolve the problem of outstanding invoices in the long-run, you should encourage your clients to pay you on time.
However, this is one of the most challenging aspects of your cash flow management, as it may hurt your customer relationships in the long run. This is why you need to choose the right tactics:
- Offer multiple payment options to cater to different groups of customers and inspire them to complete transactions faster.
- Build a billing policy that aligns your business’ and clients’ goals. This is where you should clearly state what payment methods you accept, when you want to get paid, what your fees for outstanding payments are, etc.
- Invoice your customers in a timely manner. If you’re not sending invoices regularly, you cannot expect your clients to pay you on time, either.
- Incentivize clients that pay you regularly.
- Send your dunning emails strategically and make sure they don’t compromise user experiences with your brand.
Automate your Accounting Efforts
If you’re using different payment methods, tracking your cash flow from accounts receivable to accounts payable may be too overwhelming. It not only eats up lots of your time and energy, but it also requires lots of technical know-how.
Now, hiring an in-house accountant or outsourcing your accounting to a professional consultant is always a good solution. Unfortunately, it may get expensive. This is exactly where cloud-based accounting software steps in.
It will give you a comprehensive, real-time overview of your cash flow. Most importantly, these tools will handle lots of manual tasks like accounts receivable management and perform detailed predictive cash flow analyses for you.
Predict your Cash Flow to Address Seasonal Fluctuations
Your marketing efforts and inventory demands depend on seasonal fluctuations. Precisely because of that, you need to make short-term cash forecasts that will help you predict and prevent cash shortages in advance. They will let you determine how profitable your future sales will be in shorter periods of time.
When making forecasts, start with the break-even analysis that will help you monitor the changes in your costs in relation to your company’s income. Compare your cash flow statements and income monthly or weekly to forecast your cash demands for the next few months. Based on your data, you will be able to secure additional sources of funds and prevent the seasonal fluctuations hurt your positive cash flow.
Over to You
Cash flow is the nerve center of your business. It directly determines the pace at which your company will grow. Most importantly, it impacts the quality of your customer services and lets you invest in new business opportunities. This is why you need to have a solid money management plan in place.
Familiarize yourself with the basic principles of money management.
Learn how to overcome the problem of late invoices and, most importantly, inspire your customers to pay you regularly.
Predict your cash flow to prepare for potential money shortages and invest in reliable software to handle repetitive accounting tasks for you.
I hope these tactics will help!
How do you manage your business’ cash flow?
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