Businesses have to keep cash flowing to cover big expenses like payroll every week. Even a profitable business can suffer from a cash flow heart attack when money is going out faster than it comes in. This is an issue that destroys many small businesses.
Your business may be at risk of a cash flow problem if:
- your profits aren’t enough to cover all of your expenses
- you’re not keeping good records of all cash inflows and outflows
- your customers are falling behind on payments
- you’re not confident in your ability to meet increases in demand
In order to grow your business and increase your profitability, you need to stay on top of your cash flow. However, many small business owners are not entirely sure how to prevent cash flow issues or fix existing problems. They might think that the answer is to just serve more clients to get more cash in hand quickly. But, growth can also cost you. The best thing to do is to get organized around your cash flow, instead.
This article describes six steps that you can take to improve cash flow in your small business.
Understand and reevaluate your business spending
To improve cash flow, you need to be aware of all of your business spending. Make sure that you have a system for keeping track of all of your expenses—everything from payroll and materials to marketing and insurance.
Once you understand where you’re spending money, you can evaluate it more critically. Every dollar counts, especially for new businesses. Consider whether spending that money is restricting your cash flow. You may see some places where you can make easy changes to improve cash flow.
Manage your purchases of materials strategically
It’s very easy for cash to get caught up in unsold inventory. Luckily, most service businesses do not have a huge amount of inventory. However, think about the materials that you have to purchase to do your job, such as industry tools and service vehicles. Plan your purchases strategically so that you’re not spending money on things that you do not immediately need.
If you are running a cleaning service business, for example, you may feel tempted to buy a large amount of cleaning supplies all at once so that you don’t have to make another purchase for several months. But, a large purchase might cause problems with your cash flow.
To know when you’re running low on materials and make just-in-time purchases, try the material tracking tool included in the ServiceWorks software.
Negotiate payments to vendors
Navigating your small business’s cash flow can be tricky when bills from vendors are all due around the same date. However, this is another place where you can be strategic with timing. Talk to vendors to see if you can arrange a payment date that’s more convenient for you.
You may want to try to pay all your small business’s bills as soon as you have the cash available, but doing so can cause problems. If you’re short of cash, later on, you might not be able to take advantage of opportunities like short-term discounts on tools or software.
Clarify payment terms for customers
Often, your cash flow is determined by the terms and conditions you present to your customers. When your customers are paying late or not paying at all, you will quickly have a cash flow problem.
Payment terms should be clearly stated and understood by all. If you’re delivering services over a long period of time, consider requiring customers to sign a contract before you get started. For a one-time service, decide whether you want payment upfront, after the job is done, or part before and part after. Inform your customers and let them know of payment methods, as well. This increased clarity will make the process smoother for everyone.
Encourage on-time payments
Another way to keep your cash flowing is to penalize late payments and reward early ones. Your clients will have a good reason not to fall behind. You can offer a small discount for early payments in order to get more cash at a time convenient for you.
Finally, make it easy for people to pay you. When a client has to navigate a confusing system, they will be less likely to pay promptly. Set up a straightforward payment process, such as ServiceWorks’s credit card processing in the field.
Set up automatic billing
Perhaps the easiest way for you to get paid on time and improve cash flow is to set up automatic billing. This way, you don’t have to worry about sending a timely invoice and your customer doesn’t have to find time to send the payment.
ServiceWorks’s field service management software includes this feature. Even if your customers’ credit cards expire, the ongoing billing will keep working. It’s simple to set up and ensures that your business doesn’t miss any incoming payments.
Improving your cash flow is easy when you have a whole system of support behind your business. You can try ServiceWorks for free for 14 days, no credit card needed.