The world of small business owners often revolves around immediate obligations.
They are aware that cash flow is the lifeline of their business, and if the cash isn’t there to pay their creditors, they run the risk of being unable to open the next day.
Often the cash flow pain many small business owners feel is due to less than creative cash management.
However, with some simple tips in cash management, you can stabilize your day-to-day cash flow tides.
In this short guide I’ll show you how to manage your business cash flow more effectively to reduce the risk of you running short.
Don’t pay all your bills at once
Cash flow management for a small business is akin to being an air traffic controller.
You can’t have 200 planes all landing on the same runway all at once and it is the same for your payments.
Writing and sending all your cheques at once in the hope that your sales throughout the month will replace your available cash flow is playing Russian roulette with your creditors.
If any of your cheques bounce it can make you appear less credit worthy and ruin relationships with those who are currently offering you credit, not something any business wants.
It’s fine to write all your cheques at once, but creating a holding pattern is vital to maintain your available cash flow.
Mark each envelope with the date you should post it out, allowing enough time in between each one to avoid them crashing into another cheque.
Stagger the date you send them by splitting them into three tiers for distribution.
Tier 1: Must pay
This is your priority list.
These should be the cheques that would hurt you the most either in cost or ability to operate your business if they are not paid – including payroll, taxes, rent or utilities.
Tier 2: Important to pay
Utility bills and insurance payments usually have a good grace period to take advantage of having this cash on hand when needed.
However, these are still extremely important bills to pay because you don’t want the risk being cut off.
You could lose customers if you arrive to work one day to realise your electricity has been cut off.
It would also worry employees if they start to question the financial health of their employer.
Tier 3: Flexible payment opportunities
Suppliers and wholesalers who supply small businesses are usually the best for flexible finance.
Many are more than happy to work with a stressed business as long as regular payments are made, even if they are on the small side.
These suppliers are often happy to continue to deliver as long as you communicate with them at all times and make regular payments.
Pay on revenue, not on predictions
Only make payments once you know you have the sales in the bank.
If you know what you have, you know what you can pay out.
Never make payments based on forecasts, only cold hard cash.
Never use tax money
This should go without saying really.
You could be hit with penalties and fees, it will be a drain on your time to sort out when the taxman comes knocking and it is generally a stress you simply do not need as a business owner.
The best thing to do is put any tax money from sales you have made straight into a separate bank account.
Owing a supplier is one thing, but owing the taxman is the quickest way to your business failing.
Consider investing in a payroll service
The two biggest cash flow obstacles are payroll and taxes.
Although a payroll service may seem like an unnecessary cost to a small business, it can also be an invaluable asset in the collection of and payment of payroll taxes.
Rather than worry about saving the money and making the payments, let a professional take care of it for you.
Build a relationship with a reputable credit provider
You just never know when an emergency is coming.
Most cash flow storms appear out of the blue and you may not have the necessary cash flow needed to cope.
If you work with a reputable company that provides working capital, stick with them and build up a relationship and they will be there to help quickly if you need to make that call.
Maintain a strong relationship with your bank
You may not have a loan or any lines of credit with them, but they will have a lot to say if cheques are bouncing regularly.
Communicate with them to let them know where you stand and what is going on with your business, they are much more reasonable if you keep all lines of communication open to them and will often listen and help.
Cash flow management has always been the thorn in the side to small business owners, but it is possible to bring much needed relief through smart planning and communicating well with your creditors and other financial partners.