First, get a clear picture of your finances
Run a do-it-yourself cash-flow analysis so you can see what’s coming in, what’s going out, and why there’s a gap. From there, you can take steps to reduce your costs, increase your revenue, and get a handle on things.
Reducing expenses is one clear way to address a negative cash flow situation. Take a close look at what you spend and see what you can streamline.
1. Reduce your bills. Evaluate what you’re spending money on each month and determine what’s truly necessary. Find ways to cut costs on goods, utilities, or expenses. Something as seemingly trivial as $3 a day can add up to over $1,000 in the course of a year, the difference between a surplus or a deficit.
2. Get customers to pay you earlier. One way to do this is to offer incentives for early payments and penalties for late payments. Find ways to make it easier for customers to pay you, like accepting credit cards or offering an online payment option. Automating your invoice process—which is something you can do with your QuickBooks account —and sending timely reminders may also improve payments. Don’t float for your customers if you can help it.
3. Cut a new deal on supplies and services. Most businesses require materials and labor to make the business run. Both of these are great places to assess for ways to get better value and reduce overall costs. Evaluate periodically what you spend with vendors and suppliers to see if there are better, cheaper options, if you can negotiate discounts, or buy in bulk. Nothing is set in stone.
4. Close the gap. If there’s a significant gap between when you pay your bills and when your customers pay you, that’s a surefire recipe for negative cash flow. Striking a balance in the timing of your accounts payable and receivable is another important way to stabilize cash flow. It’s only a hassle one time. Grab a calendar, take a hard look, and make sure your payment due dates alingh with your receivables.
5. Adjust your payment schedule. Paying your bills early can improve your business credit score and your relationship with your vendors. But if early payments are causing a cash crunch, consider paying closer to or on the due date. Also, see if you can renegotiate your payment schedule to one that works better for you. Optimization on both sides of your balance sheet is key.
6. Consider short-term funding. If you anticipate a period of negative cash flow or a larger-than-anticipated shortfall, consider short-term business funding to cover you until you get paid. The key here is staying ahead of your cash flow forecasts so you can predict any shortages and apply before you need it. For quick access to working capital, QuickBooks Capital offers a fast, seamless application linked to your QuickBooks, with funding in just 1 to 2 business days after approval.
Increase your revenue
Creating a cash flow surplus takes more than simply making more money. Using sound strategies that address several aspects of your business can also bring you stability and ease anxiety.
7. Assess your market value. Something you should be constantly evaluating is the market value of what you offer. You may be afraid to increase your prices for fear of losing customers, but prices that are too low compared to the fair market value may cause distrust in consumers. On the other hand, if you’re charging too much, you may lose customers to competitors.
8. Diversify and promote. As your business grows, consider diversifying your products and offerings. There are always new markets to grow into, and adding a completely new customer base gives you more opportunity to grow than a market you’ve already saturated.
As you’re diversifying your products, look for new ways to market them. Grassroots marketing through social media and online editorial are inexpensive channels that help small businesses generate awareness without breaking the bank.
Keep in mind
It’s not uncommon to have highs and lows when running a small business. The key is to have a clear picture of your cash flow and your business — and be willing to make changes when needed to grow and thrive.
1 Small Business Facts, “Why Do Businesses Close?” produced in the Office of Economic Research of the SBA Office of Advocacy.
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