You need to buy supplies, pay staff, and make investments. But suddenly you don’t have enough cash on hand for these necessities. Cash flow sputters like this can significantly impact your business, so much so that you miss out on contracts, are late to deliver, drive away your best staff and struggle with other problems. For many small and medium sized enterprises (SMEs), most cash flow issues are the result of a handful of common mistakes that are easy to correct. Here are four things your SME should do to avoid common cash flow problems.
1. Conduct Regular Cash Flow Projections
If you know that a cash flow problem is
coming, you can change your decisions to get your business on the right track.
The key to seeing problems coming is to conduct cash flow projections. Many
different accounting programs include options to project your cash flow. You
can also project it yourself with basic expenses and accounts receivables
information.
2. Finance Major Purchases
If you need to invest in new equipment,
property, or other major purchases, don’t dry up your cash reserves to do it.
You need the flexibility of having cash on hand. Look into financing options
for all of your major investments. It may cost a bit more, but it also enables
your business to be more financially flexible and take advantage of
opportunities.
3. Regularly Check Your Profitability
If your business isn’t profitable, then you
will inevitably struggle with cash flow. Even if you were very profitable the
last time that you looked, it's important to review your finances regularly
because things can quickly change. Check how profitable you are and look for ways
to boost your profitability. You may need to charge more for certain services
or products, focus more on selling what’s most profitable to you, or reduce
your expenses. Regularly checking your profitability is a wise idea to
streamline your business and prevent major problems before they pop up.
4. Keeping Good Invoicing Practices
When you get paid will dramatically affect
your cash flow. In order to get paid as quickly as possible, you have to have
strong invoicing practices. That means making payment terms clear to customers
from the outset, sending out invoices as soon as you can, demanding payment in
30 days or less, following up on invoices that are late, and using strong
collections tactics. If you work with fewer, larger clients and can afford to
be selective, it is wise to take on only the clients who pay well. Also, you
can consider offering stricter terms (such as higher late fees) for clients who
routinely pay late.
What If You Are Still Having Cash Flow
Problems?
Some businesses have to wait a long time
for payment, manage large projects, and deal with other inherent problems that
make managing cash flow more problematic. Factoring can help you manage your
cash flow better so you can build a more robust business. You’ll get your money
within 24 hours of issuing your invoice and be able to use it immediately. This
can also benefit you by reducing the time and resources you spend on invoicing
and collecting. Contact J D Factors
for more information on how invoicing can help your SME regain control of your
cash flow.
