Of the thousands of businesses that fail every year across the country, 82% fail because of cash flow issues. Small business owners and first-time entrepreneurs often make the mistake of focusing on profits and sales instead of making sure the business has sizeable cash cushion to survive a sudden crisis or a shift in the market.
Here are five ways you can manage your business’ cash more efficiently:
1. Focus on cash flows, not profits
Making a loss isn’t good, but most businesses take years to turn profitable. When you’re just getting started with a new venture you’re essentially investing for the future. Even if you start off with an asset-light business operated from home, you can’t expect to smash the breakeven mark right away.
Making a loss is bad for your finances, but it won’t put you out of business. Poor accounting practices and not being able to pay your suppliers, employees, or creditors, on the other hand, will certainly push you to file bankruptcy. So, focus on cash flows instead of profits to ensure your business survives.
2. Borrow for the short term
Sometimes a little debt can help you stay afloat or boost returns from a successful venture. If you need cash on short notice to hire more staff, pay off creditors, avoid a crisis, or simply buy you more time, consider reaching out to a business lender. Some companies, like Cash Stop, extend small cash advances for your business online. This makes it easier to apply and receive a small cash injection when you need it most.
3. Slow down payables
Negotiate better deals with your suppliers so that you can delay payments and get better credit terms. Try to extend the cash payable cycle as far as possible, even if you feel you don’t need it. This will help you hold onto cash for longer and keep your balance sheet healthy.
4. Encourage faster payments or deposits
If your business requires long-term contracts or regular billing, encourage your clients to pay you quicker. Offer a discount for a cash retainer or give them some incentive to pay you on time. Early payments, pre-bookings, annual subscriptions, and cash deposits from customers are like interest-free loans. You can use the cash now and provide services later.
5. Monitor cash with tech
Using technology to manage cash flows is one of the most obvious ways to enhance efficiency. Dropbox, Quickbooks, Google Drive, and Xero all offer great services and cloud-stored accounting software that will help you manage your cash professionally. Some of these services are free, but if you don’t know your way around basic accounting concepts it’s best to pay a professional or buy a premium software package.
Cash is the lifeline of your business. Even a small business which allows you to work from home and doesn’t employ a lot of people will require some thorough cash management. By extending payables, borrowing when necessary, asking for advances, and using professional software, you can ensure your business survives and thrives over the long term.