One of the biggest challenges small businesses face is managing cash. If you spend too much of it, you may find yourself without the money needed to meet your company’s financial obligations. To ensure that your business keeps its doors open, it’s important to keep a close eye on how much you spend on a daily, weekly, and monthly basis and make adjustments as needed.
Speed Up Payments with Invoicing Software
Sending invoices to your clients as soon as you provide a product or service — instead of at the end of the month — is one of the most effective ways to increase your cash flow. With versatile accounting software like QuickBooks Online, you can send your clients invoices that they can access on their smart devices before they even return to their homes or offices. For some clients, the faster they get an invoice, the sooner they pay.
You might also consider keeping your invoice payment terms short. You can accomplish this by requiring your clients to pay their invoices within 10 to 15 days from time of sale, to get money flowing into your business in a time frame shorter than 30 days. Another option is offering discounts to clients who pay their invoices before the due date and charging late fees to those who pay after the due date. Imposing late fees is an proven way to get clients to pay their invoices on time.
Know Your Break-Even Point
You reach your break-even point when you make back the money you spend on your business in a given time period. Knowing your break-even point can influence the way you manage your cash. So for example, if you spend R60,000 on inventory at the beginning of the month, it’s a good idea to make sure that your business earns at least R60,000 or more in the same month before spending the cash you have on hand.
Monitor Your Revenue
Just because you’ve made good sales or signed a high number of contracts doesn’t mean that your business is profitable. These things also don’t mean that you have plenty of cash it your disposable. To maintain positive cash flow, try to remember that you won’t know how much profit you’ve actually made until all your revenue for a particular period has been deposited into your bank account and all your expenses have been covered.
Maintain a Healthy Bank Account
There are always new and interesting things to buy for a business, but saving instead of spending ensures you’ll have cash on hand should an emergency come up. To maintain a healthy bank account, you might set aside a certain amount of money to save from your daily or weekly sales. If you’re good at managing your money, depositing the amount you want to save in a normal business account may work well. If you’re unsure about your money management skills, you might consider depositing the money in a bank account that limits the number of withdrawals you can make on a monthly basis.
Outsource Instead of Hiring
Paying an employee’s full-time salary plus benefits can be a hefty expense for a small business. Unless you absolutely need someone full-time in a position, consider outsourcing some of the jobs you need done. From an administrative assistant to an accountant, you can save money by forming relationships with reliable service providers and paying them only when you need their services. The money you save reducing your hiring expenses can help grow your cash reserves exponentially.
The end of the month comes around sooner than you think. Managing your cash flow ensures that you’ll be able to keep building on your successes as the months and years go by.