(BPT) - If there’s one thing that keeps small business owners up at night, it’s cash flow problems. Without solid cash flow, businesses can lose employees and suppliers, and watch as their normal business operations fall apart. When small businesses run into these issues, they often struggle to find a way out, making cash flow problems feel like quicksand. Thankfully, it is possible to pull yourself to safety. Here are just some of the ways small business owners can adapt their business practices and overcome the nightmare of poor cash flow.
Rethink your invoices
If you’re not sending invoices out as soon as possible, start right now. It’s simply the only way to get paid. But beyond that, you may consider changing your invoice policies to encourage timely payments from your customers. You can offer a small discount if they pay before the agreed-upon term, charge a late penalty or consider invoice factoring or financing. Whatever you do, keep on top of your invoices because they’re ultimately the key to solving any cash flow problem.
Take stock of your tech
Your technology investments were supposed to improve operations and drive efficiencies to save you money. But did they? Consider taking stock of your existing technology infrastructure. You may find hidden, costly issues that hinder your ability to maintain solid cash flow. For example, if you invested in an ecommerce site but it has poor UX design and doesn’t accept popular payment options like PayPal and Apple Pay, you’re leaving money on the table.
If you’re not a tech expert, it’s critical you have a technology partner that you can count on to give sound advice. Dell Small Business advisors can provide insight into the latest advancements and help guide your decisions to improve both your operations and your cash flow.
Upgrade your accounting software
If you’re using outdated accounting software, you may be turning a blind eye to potential cash flow problems. Newer accounting systems come with advanced monitoring capabilities, can automate invoices and generate cash flow reports. These reports provide insights into your cash inflow and outflow, so you can quickly identify and resolve cash flow problems. The best method to take charge of your company’s financial health is to have the best information available, and the simplest way to do that is with powerful accounting software.
Making long-term investments may be reckless for small businesses tight on cash. But there are other ways to make your money work for you while maintaining liquidity. For example, you can direct your accounts receivable payments to a high-interest savings account so you start earning interest immediately after your invoices are paid. You can then move money to an interest-earning checking account to pay for your regular expenses. You can also use money market accounts or certificates of deposit (CDs) to improve your cash position. The important thing is to change your investment mindset and find ways to maximize every dollar coming in and going out.
Optimism is an essential characteristic of any entrepreneur. But if you’re letting that optimism get in the way of sound business practices, you’re only setting yourself up for failure. For example, buying more inventory on the simple belief that you’ll hit your sales targets during the back-to-school season is a fool’s errand. Stop playing the “hope” game and go back to your data. Set realistic targets and expectations and build your cash flow strategy around that.
While cash flow issues can certainly be alarming, they can also be temporary. By taking these steps and developing a thoughtful approach to your inflow and outflow, you can resolve cash flow problems and strengthen the financial health of your business.
(BPT) - A challenge for any entrepreneur is getting access to capital. If you’re like many, you’re constantly looking for ways to reduce expenses and free up cash flow so you can be ready for anything, whether it’s a slow season or an opportunity to expand.
When tax season rolls around, you’re already taking a deep dive into your expenses and income for the past year. Don’t stop when you file. With all that information at your fingertips (and fresh in your mind), it’s a great opportunity to take a big-picture look at the health of your business and make sure it’s running as efficiently as possible.
Use the following tips to take your tax preparation efforts a step further and boost your cash flow in the upcoming year.
Dust off your business plan: No doubt when you started out in business, you were eager to put your vision to paper. Most entrepreneurs get busy with the day-to-day pressures of deadlines, and that vision can recede into the background. Schedule some time with your board members or business partners to revisit and update the business plan. Now that you understand the realities of your market, you should have plenty of ideas on creating the 2.0 version of your enterprise. When finished, it’s important to not allow it to gather dust again. Set goals and schedule check-in meetings with your team to make sure everything’s on track.
Update your budget: The nature of entrepreneurship is being agile in the face of change. Market trends, price changes from vendors and suppliers, effects of new laws and ordinances, even road construction are variable forces that can send anyone’s budget into a new direction. That’s why your budget isn’t ever going to be a spot-on prediction. Think of it as a plan. If you stay on top of it, you can spot the trends early and make adjustments right away so you can reap the full advantage — or head off problems before they become unmanageable.
Check your credit score: If you’re planning to raise capital to expand or make improvements in the next year, checking in on your credit score is an important first step you can take several months before you apply for the loan. Even if you have a business credit score, certain business loans still require a look at your personal credit score, especially if you’re a sole proprietorship. Visit Your.VantageScore.com to find free resources to learn your credit score. There’s also helpful information on what factors influence your score and things you can do that can help increase it over the coming months to help you get the best rate possible.
Create a tax strategy: The tax break Congress passed in December will save small business owners 20 percent on their tax bill this year. In the coming year, small business owners have many opportunities to capture more tax savings with the right plan and strategy. For example, if you’re planning a large equipment purchase, you may find yourself in a better tax bracket in 2019 if you time it before Dec. 31, rather than waiting until the following year as planned. Have a meeting with your accountant to discover more ideas.
Pay down debt: One way to use the windfall of your 20 percent tax savings is to pay down revolving loan debt. Doing so is a great way to raise access to working capital should you need it down the line. Depending on the source of credit, reducing your credit-to-balance ratio is one factor that could raise your credit score. Before you do so, make sure you have enough cash flow to meet your expenses.
Improve accounts receivable: If your business extends lines of credit to your customers, it may be worthwhile to implement a credit check policy on all new customers. Knowing they’re creditworthy before the fact can help you create the appropriate plan for them and protect your business. Credit reporting is also an effective way for even a small business owner to let customers know they are serious about collecting what’s owed. In the end, you’ll get paid faster and increase cash flow.
The life of an entrepreneur means things can change drastically on a dime. A thorough check-in with your finances can put you in the best position for success. To learn more about the tools and solutions offered by VantageScore, visit Your.VantageScore.com.
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