In order to be successful, businesses have to keep an eye on their cash flow (or cash that is flowing in and out of your business). That means monitoring cash flow regularly and hiring the right people to manage your budget. Here are four tips that every business should do to effectively manage their money.
Hire an Accountant
Not everyone is financially savvy – and as a business owner the sooner you recognize that the sooner you can hire someone who is. Look for someone who has a background in finance and accounting and is familiar with QuickBooks or other accounting software that can monitor spend and notify you of any issues.
If your accountant tells you that more cash is flowing out of your organization than coming in – it may be time to cut costs. Are there any bills or subscriptions that are redundant? How about monthly expenses that are not essential? If you are treating your staff to lunch every Friday, it may make sense to cut that down to once a month – or even a quarterly outing. While no one likes to make layoffs – it may make sense to reduce employees’ hours or lay a few people off. While it’s not ideal – it will increase your cash flow if need be.
A good accountant or book-keeper will be able to show you exactly what you are spending your money on – and can advise you on ways to limit your spending until your capital increases.
Get More for Less!
A smart entrepreneur understands how to get more for less. Have old inventory that isn’t selling? Sell it. Sure, you may not get the highest price for your items – but you may be able to recoup the cost that you originally purchased it for. Either way – selling at cost is better than having your inventory collecting dust in the back.
Save money anyway you can. This could come in the form of buying in bulk at wholesale costs, taking advantage of vendor sales, and even utilizing credit cards. Credit cards? That might seem backwards – but sometimes you have to spend money to get money. A grocery store has to purchase goods from vendors to sell in their stores – why not put the bill on a business credit card with 5% cash back? Travel a lot for your job – why don’t you invest in a particular airline’s credit card so you can turn around and use your rewards on discounted flights? Some business credit cards even offer a bonus just for signing up. The key to managing a credit card is to make sure that you pay it off fully each month. This will ensure that your business never goes into debt, and you are not penalized with high interest rates.
Finally, if you are a company that renders service (construction, lawyer, doctor etc), it’s important that your clients pay you on time. This means staying on top of invoices and ensuring that new clients accept your payment terms – whether that’s payment upon completion of the project, or net 45 days. If need-be send out reminders or follow up with them if payment is late. This can ensure prompt payment.
I once knew a landlord whose tenant never paid her rent on time. It wasn’t because she couldn’t afford the rent – it was that she never had time to go to the post office. The landlord took matters into his own hands and dropped off 12 stamped envelopes so she never had to worry about going to the post office again.
If you’re working on a longer project such as remodeling a house, or have a long court case it is in your best interest to ask for a down payment or partial payment of the project. This will ensure that some money is coming in and can cover the cost of material, and payroll.
By following these four tips – you’re well on your way to managing your cash flow. Remember, it’s always important to have capital for a rainy day. This will ensure the success of your business even if times get tough.