Cash flow management is one of
the challenges of running a small business. All businesses have a
unique cash flow cycle, and that cycle needs to be understood.
Bill
promptly.
Ever find yourself so busy building your business and making deadlines
that you don't get around to billing on a regular basis? You're not
alone.
If you don't already have a system in
place, start (or assign an employee to start) billing for projects on
a regular basis. When taking on longer-term projects or clients,
negotiate in advance for regular payments instead of allowing the
amount due to build up until completion of a contract.
Create
incentives for faster payment to you.
Small businesses can sometimes significantly cut the time spent
waiting for payment by offering a discount for quick payment. I've
received bills from businesses offering discounts of 1% or 2% for
payment within 10 days. If the invoice was going to be paid within 30 days
anyway, the customer is likely to fire out a check right away to get that little
extra discount. That's good for the bottom line, and good for cash
flow, too.
Avoid slow pay/no
pay customers from the start.
The best way to avoid cash-flow problems because of customers or
businesses not paying you is to weed out those slow pays/no pays out before
they become clients. So if someone is about to become a significant
client or customer, do your homework. Ask for — and check out —
credit references. Call other businesses that have had a relationship
with the client. You might even pay for a credit check from an
organization such as Experian
or Dun & Bradstreet.
Use barter instead of
cash.
You could reduce the strain on your immediate cash if you need goods
or services from someone and can barter goods or services of your own
in return. Note: This is not a way of cutting any tax bills — you're
still required to report the value of the barter transaction on your
tax return.
Trim your
inventory.
OK, so you can't go to a "just-in-time" inventory management
system like many manufacturers have adopted. How about
"just-in-less-time"? Money spent on inventory is money that
isn't producing any interest or savings for you. Unless you bought at
below market prices, or timed your purchase before a large price
increase.
Sometimes reducing inventory can be
pretty simple. Restaurateurs, for example, can cut back on the size of their
wine cellars, focusing on quality wines from a few regions instead of
trying to be all things to all diners. If the customer still has good
choices, it may not even matter that he has fewer choices than before.
Consider
consolidating your loans.
It's often tough for small businesses to borrow
money, but there are a number of ways entrepreneurs can manage to
borrow. Company assets or accounts receivable can be used
as collateral.
If you have several loans
related to your business, review the rates and terms on each one. You
may be able to consolidate two or more loans into a lower-interest
account and improve your cash flow. While stretching out loan payments
is not a wise thing to do, you might talk to a lender about consolidating existing loans into a new
loan with a longer-term in exchange for lower monthly
payments.
Give gifts,
not meals.
This is a little thing, but it's definitely worth keeping in mind if
you want to tell a client "thank you." Take a client to
lunch and you can deduct only half the cost of the meal. Buy a client
a gift or gift certificate for up to $25 and you can write off the
entire cost, further cutting your tax bill and improving your overall
cash flow. Guess what the tax guy advises his clients to do?
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