Tips for Improving Your Small Business Cash FlowAchieving positive cash flow just doesn’t happen on its own. You must develop and execute a sound financial plan in order to avoid running into cash flow problems. Your small business can increase cash reserves in a number of ways including:Collecting Receivables This is one area small businesses must work aggressively. Collecting on overdue payments quickly is a product of actively managing account receivables. Lost revenues due to a small business lack of effort is a sure fire way to get yourself into cash flow problems. Set aside a time each week to make those calls. Email is not as effective as a personal call. Think of collection calls as part of the service you provide. The job isn’t finished until the bill is paid. Set Firm Credit Requirements If your small business tightens its credit and term requirements, more customers will start to pay cash for your products and/or services. However, be flexible when it comes to your credit requirements. Setting stricter credit and term requirements may be good for the short term, but could prevent from higher sales in the long run. Loosening your credit requirements allows more customers the opportunity to purchase your products and/or services in the future. How do you know when to loosen credit or which customers should get more lenient payment terms? Talk to them about their business and look at their payment history. If their business is growing and their payments have always been on time, then extending more credit makes sense. Understand Your Price Small businesses often make the mistake of overcharging for their products and/or services. By understanding your product’s market, you can accurately price your deliverables which will, in turn, help with overall sales. So how do you maintain profit margins without increasing prices? Look at your processes – can they be streamlined or automated? Are you paying overtime when hiring additional personnel would actually cut labor costs? Can parts of your process be performed by a non-competitor more economically? Do shipping and restocking fees need to be adjusted? Can you negotiate a lower shipping cost with your shipper? Are you sure that the customer is not exempt from sales tax? Monitoring all of these things can make you price-competitive and can also boost the bottom line. Increasing your Sales You would think that increased sales would mean greater cash flow. However, if your sales are made on credit, then your accounts receivables simply increase, not your cash flow. Furthermore, you may have to restock diminished inventory which could be costly for you. Substantial increase in sales may be good in the long run, but could hurt your cash flow in the short term. This is the time where firm credit requirements could work to your advantage. Since 1962, BatesCarter has contributed to the success of a wide range of small businesses in Gainesville, metro Atlanta and throughout North Georgia. From accounting and bookkeeping, to taxation and advisory services, we have the knowledge and expertise to help any small business with their accounting needs. If you would like to learn more about our small business services, we encourage you to contact us today. We look forward to hearing from you soon. |
Ron Bracewell, CPA/ABV
rbracewell@batescarter.com 770.532.9131
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