Currently half of US businesses fail in their first few years of establishment. This number is one that small business owners accept upon establishing their own business. The disturbing fact is that while many business owners are depressed to continue their small business in times of low-to-zero cash flow, this is part of business.
Cash flow is essential for all businesses, but it is critical for startups. If you cannot manage your cash flow in the first year, you will possibly have some survival problems in the second year.
Here are some guidelines to help you manage your cash flow effectively:
- Calculate Your Breakeven Point
You’ve to know when your business will become lucrative, not because it will disturb your cash flow; but because it gives you a primary objective to strive for and an appropriate target for forecasting future cash flow. Bad or negative cash flow and negative profits make for a grim combination. Concentrate on your efforts in managing your cash flow.
- Concentrate on Cash Flow Management
Use your breakeven point as a standard and when you get it and you deem your business is profitable, you still need to manage your business’ cash flow. You have reached another stage of your business’ life.
- Keep Some Cash Reserves
You possibly will have some cash deficits. Your small business’ survival may additionally depend on how you move through these cash deficits. In case you start with your personal cash reserve, it’ll be less difficult to focus on cash flow and also you will not feel hassle about the deficits.
- Use Cash Flow Worksheets
To document your cash flows, you can use the cash flow sheets provided by SCORE on their website.
- Collect Your Receivables
Bring someone from your team on managing receivables and contacting customers intermittently to collect payments.
- Encourage Customers to Pay Quickly
Provide your customers with early payback discounts and keep your unnecessary credit requirements strict. Set up standards for determining who’s qualified for credit. Implement these standards inflexibly. You don’t need every customer approved for credit.
- Extend Payables
In contrast, get the best deal you can on payables. If possible, extend your payables to net-60 or net-90. There are some suppliers that charge late fees; therefore you need to make sure to pay on time.
- Offer Creative Incentives
Offering creative incentives such as sponsoring a contest, customer appreciation event, referral incentives, or taking your workers on a promotional tour can help boost your sales quickly.
- Delegate Someone to Monitor Cash Flow
Delegate the task of monitoring cash flow to someone you trust in your team of workers. Have that worker notify you when you reach a pre-specified threshold.
10 Use Cloud Technology
Use cloud service sites to save your cash flow spreadsheets. So you can access your cash flow spreadsheets and other financial data from everywhere. You can also use professional accounting software programs to better manage the accounting side of your business.