A business owner’s worst nightmare. If you’ve ever experienced a company cash crunch, you understand what the long sleepless nights entail. Can I make payroll on Friday? How willing will my creditors be to send a life raft? The thoughts are endless. If you’re currently experiencing cash flow problems, they likely stem from one of four key issues.
1) Your sales aren’t high enough.
2) You’re not collecting money people owe you.
3) You’re not charging enough to cover expenses.
4) You’re spending money at the wrong time.
Lets take a deeper look at each.
Your sales aren’t high enough. Chances are, if your sales aren’t high enough, your customer base isn’t large enough or you’re not selling enough to existing customers. First check your marketing strategy. Do you have a way of consistently reaching out to your customer base? If not, start one today! It can be as simple as posting promotions on a free platform like Facebook. There are numerous ways to market your business and increase revenue. How you do it depends on your target audience and the industry you’re in. However, you decide to advertise to your market, make sure that you have a system in place that tracks your efforts. A marketing system that tracks your results will save you thousands by quickly showing what is working and what isn’t.
You’re not collecting money people owe you. Many business owners fall into the day to day activities of their company and simply forget to invoice customers for their services or products. If you’re to stay in business this simply can’t happen. Most small business accounting software has invoicing features already installed. Utilize the features within it to customize your invoices and stay on top of your receivables. If you are a company that works on credit and extend terms such as net 30/60/90, ensure that you are consistently watching to see if your Accounts Receivable account is growing. If it is, your customers aren’t paying you on time. Before extending any customers credit, have a process in place that checks the company or individual’s credit and any references they may list. By simply doing your homework, you will know if you’re doing business with the right people.
You’re not charging enough to cover expenses. It is well known that you must charge enough to cover your expenses, but many business owners fail to do this. Calculating direct costs for products or services are easy and all businesses do this. It is the overhead expenses that many small businesses don’t understand how to incorporate into their prices. By allocating your overhead properly and understanding what your margins should be for your industry, you can appropriately price yourself. Don’t simply look at your competition prices and decide on yours. You are competing with them for a reason, and that reason is because you do something better! Track your own expenses and calculate a price that pays you for your good work.
You’re spending money at the wrong time. Just like relationships, timing is everything. If you operate in an industry where you have large upfront costs and a lengthy receivables time, cash flow timing is a must. The only way to know when to appropriately spend money and how much you can afford to spend is by creating a cash flow template. These templates typically span for a 13-week period. When done properly, you can inject different variables and watch what happens to your cash on hand. Small business owners should utilize this tool when making any decision that adds expenses to the business.
Conclusion Cash Flow problems can be an absolute nightmare. So, don’t go in alone! Still Water Financial Operations is here to offer expert advice. Allow us to build a custom cash flow template for your business and guide you to smoother waters.
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