It’s a Daunting Affair
Starting a business, regardless of scale and nature, is always daunting. Sure, figuring out what you want to sell and how your prospective clients want to see you may appear easy on paper. But when it comes to gathering leads and converting them into actual paying consumers, that’s when things get challenging. When you see the numbers coming in or the scarcity thereof, you begin to question whether or not you have made the right decisions.
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Small businesses may become vulnerable to immediate losses. While initial losses are natural and even integral to the operation of small-scale businesses, not recovering from them and repeating the same blunders eventually lead to business closure. For those who are just starting a business, having to read this might seem grim. But trust us, it has to be said.
We cannot stress enough that financial literacy should take precedence in your foray into the business sector. To keep the money flowing, even when they only come small, you must learn how to think big, with your mind consistently eyeing the details.
This article outlines five ways to smartly manage your business’s cash flow.
6 Tips To Effective Cash Flow Management
- Apply For A Small Business Loan
Borrowing money to keep money flowing? Yes, you read that right. You may need to borrow money for your business to get it off the ground. While some people with business ideas think that generating capital from their pockets is ideal, it can prove limiting.
Called bootstrapping, this business model may result in tight budgets and limited growth. More often than not, people who bootstrap find themselves struggling to balance their personal finances with their business finances. This compels small business owners to weigh between spending on what they need personally and what they need for the business.
Relying on savings alone will compound certain issues in building the business. The owner might hold back on buying new equipment, hiring a new staff member, renting additional space, and so on.
Applying for small business loans or enlisting the help of an investor will expand the business owner’s horizons. They will be able to separate their finances from the money spent on growing the business. This allows the business to become a breathing and self-sustaining entity.
Financing your business with a loan also helps you build a good credit score.
- Establish a Line of Credit
A Line of Credit is a type of pre-approved loan that a bank or any other financial institution grants an entity. The entity may be an individual, a business, or even a local government. A Line of Credit allows a party to tap or access funds when they need to sustain any financial function.
Gaps between payables, needed logistics, unexpected expenses, and growth opportunities can be covered by a Line of Credit.
- Pay Strategically
A no-brainer: paying all your bills at the same time will deplete your funds.
That said, you have to review your payables. You must know which should be your priority and which you can stagger. Not just because you have money on hand, you must immediately pay for any outstanding loans or bills. You should determine a schedule for every payment deadline.
Do note however that you need to pay on time. Being late for a payment you set is also a manifestation of its ineffectiveness. And remember, when you handle a business, being late in payments means penalties.
If you are a good payor, you may want to check if you can get discounts on certain bills you pay. Once you determine these bills, you can prioritize them to save up on funds.
- Determine a Payroll Cycle That Is Right For You
As a business owner, securing the best payroll schedule not only helps your employees but also keeps your head above water.
The smart way to go about it is to time the payroll with your revenue stream. This of course still depends on the kind of business you run. For example, food businesses can afford to pay their employees on a daily or weekly basis. Manufacturers and suppliers? Not so much. They have to rely on the payable for their services which usually reflects within the middle or end of the month.
- Be Sharp With Receivables
You have to foster a culture in your customers that would encourage them to settle partially or entirely when they receive a service.
You can do this in several ways. You can require deposits when your clients place orders, offer discounts for outdated products, and provide discounts to those who pay on time.
Regardless if you are an e-commerce website or not, you can always establish an electronic payment gateway for online payment support. Of course, this would entail that you protect sensitive data from clients that go through your system.
Automation of scheduled payments would also help in this regard.
- Scrutinize Your Credit Policies
Not just because the customer is always right means you have to approve all their requests for leniency.
You should establish a firm credit policy for customers to strictly adhere to.
You can send invoices on time and confirm receipt. You should also regularly follow up on payments that are delayed and monitor serial offenders.
As a preventive measure, performing credit checks or investigations on a customer before granting a request is wise.
Lastly, automating the payment process helps secure payments tremendously.
Setting Up The Business Is Only Half The Battle
Securing that the money for your business is flowing right should be your priority once your business gets off the ground.
The measures discussed here will provide you the sanity and peace of mind in dealing with the money that comes in and out of your business. By following through, you can assure yourself that everything you planned to materialize will come to fruition in the long run.
