How to Avoid Cash Flow Hiccups in Your Small Business

Small businesses are the heartbeat of their communities, offering essential services, friendly experiences, and meaningful employment to many. However, it’s not enough to have a great business concept — small business owners need to have financial savvy, too.

Read on to learn how to manage your small business’s cash flow easily and without having to neglect your core responsibilities. With these strategies, you can set your small business on firm financial footing and get back to your most important work.

1. Establish a Simple and Repeatable Invoicing Process

You’ve got the product or service, customers, and personnel, but getting paid for your efforts is often the most challenging part. After the hard work of acquiring a customer and doing your job, discussing payment can be tricky. Even in business, talking about financial matters ushers in feelings of discomfort, which can put your bottom line at risk.

To clarify your invoicing process and establish customer payment expectations, it’s essential to set the ground rules. First, look at your customer agreements to see what payment terms you’ve currently outlined. Next, review the most recent customers’ behavior to determine how many are paying on time.

If a good majority aren’t, determine whether your terms are in line with industry standards. Consider what late-paying customers are telling you in emails and in-person interactions regarding on-time payment. Adjust your terms as needed, doing so in alignment with counsel from your go-to contract attorney.

Next, look at your invoicing process to see what improvements can be made. If your billing process is manual, invoice software may be your saving grace. By centralizing invoicing, you can set up client accounts once and add new invoices over time. Plus, you can set rules for how and when bills go out and when reminders and nudges follow. If you have penalties for late payment, fees can be coded into your settings, cutting out hours of manual work.

If a client continues poor payment habits, use account alerts to flag your billing administrator of potential issues. Use this flag to review their contract to determine whether the business relationship may need to be severed. While losing a client is never fun, neither is doing work and not getting paid. This way, you’ll spend your time more efficiently on paying clients and avoid having to chase down invoices from delinquent customers.

2. Set a Manageable Budget

Don’t tell your financial planner, but your business’s budget may even be more important than your personal one. In a business, many people are relying on you to be wise with company finances, so establish a workable budget.

Your business budget will be different from your personal expenses, with many gray areas that rely on projections. First, you’ll need to establish your total operating costs, including materials, technology, rent (if applicable), payroll, and taxes. Then, project your annual invoices based on client agreements, retainers, and scheduled work. Establish a conservative estimate for your expected income, taking into consideration any seasonality your business experiences.

If you run a landscaping company, for instance, spring may be your busiest season. Increased customer demand may mean hiring more workers. You’ll need to have cash on hand to make payroll before customers pay their invoices. Smooth your accounting by requiring a 50% down payment on scheduled work. This allows you to hire adequately, pay workers on time, and accept more jobs.

Similarly, analyze your equipment needs, replacement costs, and large-scale purchases. Vehicles can last for years, but smaller equipment like shovels and rakes can take a beating or even be misplaced. Budget for bulk purchases when it makes sense and when you can store them. However, resist over-buying, as excess latent product is wasted capital you may need later on.

Monitor your budget with vigilance and establish a process that filters expenditures conservatively. Limit authorized agents on company credit cards and require approvals on purchases over a modest set amount. By restricting access, forcing consideration before spending, and requiring sign-off, you can reduce overspending and not get caught up short.

3. Leverage Tax Advantages and Opportunities Reserved for Small Businesses

Small businesses often enjoy generous tax benefits and other incentives, but identifying and accessing them presents challenges. Skip the complexity and engage with your chamber of commerce to get direct access to small business resources. These organizations exist to cultivate and reinforce small businesses, which are essential for an area economy’s long-term success.

For a small membership fee, your local chamber can provide you with listings of financially advantageous opportunities. From tax credits, rebates, and incentives to low-interest loans and business coaching, these perks put your small business in a good financial position.

Similarly, familiarize yourself with state- and federal-level economic development programs and priorities. Grants and tax incentives are being offered for businesses in industries like technology and manufacturing. Many times, these incentives are left on the table because filling out applications seems onerous and often falls by the wayside. However, making the effort can provide financial backing and boost brand awareness, so go for the dual benefit.

Finally, gain access to contract opportunities by registering or certifying your business for designations you qualify for. If you’re a minority, woman, or veteran business enterprise, filling out the appropriate forms puts you on a contract shortlist. Leverage every opportunity available to gain valuable contracts that further support your small business’s cash flow.

Control Your Cash Flow, and You’ll Control Your Destiny

Running a small business isn’t for the faint of heart, and many enterprises don’t make it due to financial mismanagement. Don’t sacrifice your legacy for the sake of financial shortcuts. Honor your hard work and your business’s potential by making smart financial moves to manage your cash flow. When you do, you’ll create the foundation for long-term success for your small business.

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