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Cash flow solutions always seem to be a difficult thing to achieve. Even a healthy business can experience issues with cash flow at one time or another. Below are five ideas to help your business find a solution to your cash flow problems.
#1 Understand Your Worth
You have a great idea or you are filling a dire need in the community. This may seem like a no-brainer, but seriously consider your business value. Many small businesses don’t regularly check the price points competitors offer. Depending on your field, these prices could change rapidly or remain stable. Try to keep your prices and fees within the range of competitors, but don’t sell yourself short, either. Make a habit of price checks regularly by scheduling dates in advance.
#2 Forecasting...Get Ready for Sunshine, but Also Prepare for the Storm
While forecasting is not an exact science, it is easy to be too positive. You are getting leads in the door, you are turning a profit, and your employees are happy. However, if you are doing your own forecasting, you are likely just watching patterns in data and nothing more. While important, this might not show you the whole picture. Sometimes it is good to rely on data to go beyond feelings, but it is also important to examine the underlying story behind the data. This can lead to having the right amount of product and the right amount of momentum.
Qualitative techniques: utilizing market research, similar-product data, consumer panels, etc. to provide objective information on a relatively new product/service
Time series analysis and projection: using carefully defined controls and historical data to determine future product/service needs
Causal models: taking both historical data trends and social trends into account to determine future sales
Rarely are small businesses using a highly sophisticated forecasting model. It’s most important that the information is reliable and easy for the business owner to use. Make sure that the data can be acted on quickly and easily accessible. Data hidden in spreadsheets may not be easily digestible for you (or your investors). Rod Loges from One Degree Capital sees it this way: “We find that the businesses we work with who understand where they are headed financially, do that based upon solid books from which they can predict reliable trends, and take into account seasonal changes.”
Many budgeting software programs also offer basic forecasting as well. Programs like Prophix, Centage, and DemandWorks are all software programs to consider. Software Advice offers a breakdown of the best budgeting software with forecasting by platform, business size, price, etc.
#3 Categorize and Budget. Consistently.
Budgeting and categorization helps to curb rash spending and end guessing games of how much is available for a specific purpose. If you employ an accountant, ask for a weekly summary. If not, categorize your expenses once a week so you know right away where you need to manage spending. This process can also unearth trends in your spending and identify potential budget changes.
Make sure you’re also putting money aside as a cash flow reserve. Your business should have the savings necessary to survive at least two months without income, and having cash in reserve for regular fluctuations is also critical.
#4 Cut the Tension between Getting Paid and Paying Expenses
Often, the biggest issue with cash flow is having invoices due before you receive payment. This can happen anytime, but especially if you’re in a market with irregular seasons. Common ways to deal with this issue include:
Incentivizing clients to pay earlier by offering early payment incentives
Enforcing strict policies and fees for late payments
Requiring partial or full payment in advance and the rest at time of delivery
Factoring invoices to another business (the other business takes a fee, but you are paid a percentage of the invoice immediately, and the rest upon collection of the client’s payment)
Scheduling items on a prepaid/monthly plan to establish a cash flow rhythm
The most important thing you can do to keep your inflow and outflow balanced is have policies in place so that the process remains predictable and consistent, even at times when the market may not be so forgiving.
#5 Change Overhead into On Demand
Obviously, you need to keep the lights on. But if you’re spending the wrong percentage on overhead based upon your sales revenue, your business won’t be able to thrive. Check for these common overhead categories to help cut back costs:
Supplies: Make sure only one person oversees ordering office supplies, and that they’re taking advantage of sales or bulk offers. Subscription offers like Amazon Pantry can also help cut down costs (and prevent staff members from taking multiple trips to the store for supplies). Invest in supplies that can offer multiple uses like a shared Chromebook in the office. There are websites and apps dedicated to accomplishing certain tasks for you by asking for a subscription fee or serving you up paid ads: Dropbox, Adobe Creative Cloud, and Workday are a few examples.
Utilities: Turn off lights and computers when you leave for the evening and consider a programmable thermostat. Keep an eye on your water bill for any unusual spikes in water usage, as it may be a sign for leaks. If your business utilizes a VPN or has a security plan in place, you may want to consider bringing your own device (BYOD) policies with employees.
Personnel: Often one of the largest areas of business expense, careful staff cost management is a key. If there are underperforming staff members, now might be a good time to evaluate future goals with them. Check out this great resource for starting that difficult conversation.
Outsourcing/Teleworking: This can’t always be an option, but outsourcing of work and allowing for accountable telework can help your business tremendously. Resources like Upwork, Fiverr, Elance, Freelancer, and Guru can help you find options in foreign countries as well as in the country/in your state. You may need a temporary boost in administrative work which you can outsource rather than invest in brand new personnel/burn out existing personnel.
While cash flow challenges are a common issue for businesses at any stage, it doesn’t have to be a problem in your business. By scheduling budget, checking on overhead and prices, forecasting correctly, and managing your accounts receivable versus accounts payable closely, you can help ensure operations run more smoothly.