Does this sound familiar? It’s the end of the month and it’s time to pay your employees, but there’s a problem. A few of your major clients are behind in their payments, and you don’t have the cash on hand to make payroll. Situations like this one are probably more common than you would think. This study on invoice payments shows that 60% of invoices are paid late. Sure, you know that the money’s coming, but that’s not enough—you need to know it will be in your bank account when it counts.
What you have is a Cash Flow Problem. 82% of businesses that fail close their doors due to problems with their cash flow. And while there are a few ways to survive a temporary cash crunch, of course the best option is to avoid the problem in the first place.
1. What is cash flow?
First things first—we have to define what we’re talking about. Cash flow is any money that comes into and goes out of your business over a period of time. It includes everything from revenue from goods or services (cash inflows) to payroll, equipment upgrades, and loan repayments (cash outflows).
When your business brings in more cash than it spends, you have a positive cash flow, which is great! On the other hand, if your business spends more cash than it brings in, then you have a negative cash flow which can become a serious problem if not addressed in time.
2. How do you maintain cash flow?
You don’t want to become one of those 82% of failed businesses, so how do you make sure that your cash flow situation is in good shape?
There are multiple things you can do to improve your cash flow, but here are just a few suggestions:
- Invoice your clients promptly and clearly communicate payment terms and due dates. You might still have those people who don’t get their payments in on time, but for the most part, people will respect the deadlines that you give them if you clearly communicate your expectations upfront.
- Make it easy for your clients to pay. You’ll get your money much faster if your clients can pay with one click on their invoice than if they have to send you a check in the mail. Plus, it will make their customer experience more enjoyable and hassle-free.
- Keep up with your inventory. Keeping a well-organized inventory will save you from ordering product you don’t need because you either couldn’t find it or it went bad before you could sell it. Wasting inventory is wasting money, but taking good care of your product will minimize unnecessary spending and as a result, help your cash flow.
- Keep up with your payments. While we’re talking about how to increase your cash inflows, you also need to remember to keep your cash outflows on track as well. If you don’t pay your vendors or your creditors on time you’ll have serious credibility problems down the road. Make sure to have a good system in place for consistently making your payments on time.
- Spend less if you need to. No matter how much money your business brings in, you cannot survive if you’re spending more money than you make. Developing good spending habits when you have a surplus will prepare you for the times when you’re not bringing in as much revenue.
3. How do you track your cash flow?
Since cash flow is an indicator of your business’s financial health, it’s essential that you understand how to track it. While you have the option to track your cash flow yourself using a spreadsheet like this one from SCORE , we recommend using software that has been developed especially for small businesses like yours.
With Quickbooks® Online, you can track all your cash inflows and outflows, view projected income and expenses, and keep track of all of your business balances all in one place. Plus, if you sign up today for QBO, you can get a 55%-off discount exclusively from JR Bookkeeping!
What if none of the above work?
If you’ve tried all the above and a couple dozen others—different financial software, accounting systems, and money-management techniques—and you’re still feeling overwhelmed by your business’s finances, there’s one fool-proof method guaranteed to keep your checkbook in check.
Hire a professional.
Sometimes, the wisest course of action is to defer to the experts, so let us handle your books. It’s what we do best. You focus on what you do best, which is connecting with your customers and growing your business.
And by the way, if you sign up today, you get 1 month of services FREE. You’re welcome. ;)