Sly Cash Flow Ideas for Small Business Owners

Posted by: Kristen // January 20 2010

The turbulent economy is rough on small business owners. Sure, the marketplace changes continuously, but the interconnected nature of our economy means that the manufacturer going out of business in New Jersey cripples the distributor in Florida, which then affects a retailer’s sales in Savannah, leaving the retailer unable to pay the small ad agency in Atlanta. The cumulative effect of so many businesses and individuals juggling their finances impacts your bottom line. Here are some tips for managing your cash flow:

Create an efficient billing process and a clear collections policy.

Spell out the payment policies in the contract before you begin work. You can ask for a retainer or 50% of the project fee upfront, with the remainder due at the end.
Add a “stall” clause to protect your company in the event that the client sits on a project for more than 30 days.
To speed up payment, make sure invoices are detailed and easy for clients to understand.
Bill your customers as often as possible, within a few days of project completion or on delivery of the product to keep checks flowing in.
If possible, use the “email invoice as PDF” feature in QuickBooks Pro. This can speed up receivables by as much as a week and eliminate “lost in the mail” excuses.

Collections can be a real drag, but it’s a necessity. Review your A/R aging report on a weekly basis and call clients about late payments. Often it’s just a misunderstanding. If a customer still doesn’t pay, stop delivery of service. This is your bargaining chip to re-negotiate terms before threatening them with reporting it to a credit bureau, engaging a collections agency, or the ultimate step: taking legal action.

Get a tighter grip on the money you are spending. Examine expense reports. Re-visit vendor contracts to eliminate features and services you don’t really need. Re-negotiate with suppliers or investigate alternative providers to ensure you are getting the best deal possible and have flexibility to change in the near future. Rent is a cost you can’t avoid, but in a market like this, you may be able to re-negotiate your lease at more favorable terms. There is an abundance of office space out there, and it’s easier for your landlord to make some concessions rather than lose another tenant.

Get more efficient. Every company is looking at this as a way to improve their margins. While small businesses are naturally good at doing more with less, there is a lot to be said for re-examining your operations. Ask yourself a few questions:

Do you have redundant processes in your business?
Are you making the best use of your employees’ time and talents?
Is a technology upgrade in order? Sometimes an upgrade in software can improve worker efficiency or free someone up to tackle other tasks.

Finding out the answers and making changes can save you a lot of money, easing some pressure when it comes to cash flow.

Inquire about early payment discounts. Paying bills on time is a no-brainer, but many vendors provide discounts for early payments. These discounts are usually much larger than the interest you would have earned keeping your cash in the bank until the last minute. You can also negotiate larger discounts than the ones they initially offer you. Imagine saving up to 15% just for paying your bill. It also gives you a good reputation, which can help you if you experience a rough month and need some vendor mercy.

Stick to a budget. If you don’t have one, create a budget that includes projected earnings and planned expenses. A separate cash flow statement can show how money is actually coming in and out of your company. By looking at the data monthly, you can track your progress and make important decisions. Your accountant can put this together and help you interpret the results and plan accordingly. You should also be speaking with them throughout the year about tax planning, as that will affect cash flow too.

Build in flexibility through credit options. Line up a business line of credit before you actually need it; after all, banks love to lend money to those who don't need it. By applying while your finances are healthy, you’ll be able to keep your business running smoothly when the unexpected occurs. The American Express Corporate Card is a helpful tool for managing cash flow. Larger purchases can be paid with the current billing cycle or spread over time with interest. One warning: these interest rates aren’t as favorable as those of a line of credit, so don’t make it a habit.

Rev up your business development efforts. It sounds obvious because it is: the more business, the more money. Close outstanding deals. Call on prospects you haven’t spoken to in awhile. Attend targeted networking functions and make smart use of social media. Keep an eye out for opportunities to cross-sell to current customers. And don’t forget to ask them for referrals, which can be your most powerful source of leads. Your clients will understand why you’re doing it, and most would probably love to help you.

Small business owners are the heart and soul of our economy. Take proactive steps now to survive this downturn, and since many of these strategies are best practices in any market, you can align your company to thrive when the good times start rolling again. Good luck out there Sly entrepreneurs!

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