Monitor & Improve your Business Cash Flow

The most important part of making sure you can pay your monthly bills is your business’s cash flow. It doesn’t matter how much money you have billed out and are sitting on your books if it is not in your bank account it won’t help you. Making sure you have the money available to pay your obligations in a timely manner can also save you money besides improving your credit and bottom line.

Here are steps you can take to manage your cash flow.

Use dedicated accounting software

It is not just necessary to have a computer but to have and use software designed especially for managing your money. I love QuickBooks and there is a program level for just about any kind of business out there, big to small, basic to advanced. There are plenty of them out there and I am sure you can find something in your price range. Remember using it will save you countless amounts of money and time.

Set up auto bill payments

This is very common these days but makes financial sense as well. If you set yourself up a few different checking accounts to manage your resources. You could have one that just handles payroll, taxes, and license fees. One that you use for all your fixed monthly bill expenses like your phone, rent, vehicle payments, and electricity that don’t or seldom vary month to month, and then a third general funds account where everything funnels through. You can set up that each week, a few set days a month, or just once a month a set amount will be taken from the general fund to go into the two others to fund them for their automatic payments to be paid from. Try to have a two-week or monthly surplus of cash in each. This way you can easily see when you are gaining a surplus of cash flow, that could be set aside in a savings account or when you are having a shortage where funds will be needed to be added from savings or by other means of credit. You will also not have to watch and worry about each separate payment date since they will come out when needed.

Have a Collection Policy

Not having one is like planning to throw money away and not following one you have in place is like setting a match to it. Many of you do not extend credit to most of your customers. Pressure washing is typically a do the job get paid right then business. But those that do contract cleaning, large company fleet washing, building management work, etc. you are doing a job and then having to wait for the money to come in sometimes 30 to 60 days letter. Letting customers get away with not paying you can sometimes hurt you more than not having the work in the first place so don’t let it happen. Make sure your collection policy is a part of every contract and press its points when needed. As soon as you let some slip, “Oh but they give me so much business.”, you will be having to slip yourself to your vendors and putting your business credit at risk, not theirs.

Immediate Payment on Accounts Receivables

Have a system in place where customers can pay you as easily as possible. The time for waiting for the check in the mail is disappearing. Money transfers are becoming instantaneous so why shouldn’t you have that too. Rather than spending time and money chasing down late payments use methods to get your money faster. Find the best deal to accept credit card payments. Yes, there are fees involved but figuring in that small percentage to the cost of your doing business will pay off. Most smartphones and iPads can now have point-of-sale scanners and applications to accept payments, companies like PayPal and Intuit have programs. Your own bank may have web access payment options you could use even with checks by taking photos of them to be automatically placed into your account. Instead of mailing out past due notices you can send e-mails that contain payment buttons in the e-mail. Put in your contracts that they must supply you with credit card information and that your bill will be drafted each month on a certain date, 30 days after work is completed, or some other set way. State, add, and collect late fees. Once a company knows you will do what you said and charge more for late payments, you will become one of their vendors they are more apt to pay instead of letting side when their money is tight, freeing up your cash flow.

Increase Prices

No one likes to think about having to increase their prices to their customers. But as a small business owner, you have to know what it takes to keep your business running while still giving you a fair profit. The added costs for creating a cash flow system, like the computer, software, credit card processing costs, bank fees, website, e-mail program, etc. are all things that add to the basic price that you should include for your customers. But that is not to say that you can’t give something back to those customers who help you with your cash flow in the form of discounts or incentives. For instance, say offering customers charge card services runs you 4% of revenue. Then increase all of your services by that same 4% and then give the cash customers 4% off their invoices and those that pay by check 2% off. Or whatever the electronic check transfer cost percentage is. This way you are not penalizing those customers and maybe others that may have thought about using a card will pay in cash instead. Want your contract customers to pay you faster? Then offer them NET 15 3% as an incentive.

Reduce expenses

Things can change rapidly, just look at the price of gasoline for instance. Your operating costs could vary widely from month to month without really changing anything you are doing day to day. For this reason, you should look at your expenses at least once a quarter if not every 30-60 days to see where you can make improvements. Keep in close touch with your own vendors to be able to take advantage of sales, ask to be on mailing or e-mail sales lists, friend vendors that are on Facebook have Twitter or Foursquare accounts, etc. They may send out announcements you would want to use. These are tough times and many companies are shopping for new customers and are giving sometimes big discounts to get them.

Choose your customers wisely

Especially contract or big-time and cost customers. It does not do you any good to have bid and won a fleet wash contract if they are having financial issues of their own, don’t have all the equipment at the location when they are supposed to, require revisits or extended time frames for your employees. Do your homework on them first by using D&B or other credit reporting companies that we discussed earlier in the first segment of these posts. Have it clearly stated in your contracts that services can and will be skipped or suspended if payment falls behind. There is no reason to keep working if you have little or no hope of seeing payment in the near future. Work like that can not only slow down but block your own cash flow by using up time you could have had for finding or doing other work that would bring in money.

Communicate with your vendors

We all know it is hard to be waiting on Peter to pay Paul, but letting the vendor, who is also waiting for payment, sit in silence is not the answer. And doing so can start to damage or ruin your business credit with them. Sometimes just a quick phone call or e-mail stating that you have not forgotten them, that you know your invoice is due, and letting them know when you expect your payment in order to make yours is all that is needed to keep a good relationship. As bad as you feel having to call the vendor, they feel just as bad not knowing and having to contact you for collection. Sometimes it is easier to ask for NET 60 with a slight penalty than losing your NET 30 status which will only tighten your cash flow in the future if you must begin to pay that vendor for supplies or services up front.

I apologize that this post got so long, therefor I will postpone our Corporate Credit Do’s and Don’ts until next time.