by Author and Entrepreneur, Derek Goodman, Creator/Owner of Inbizability
Cash flow describes cash flowing in and out of a business. As a rule, you want more cash flowing in than out. But staying on top of your cash flow isn’t always a walk in the park. Cash flow problems are the bane of any business and, indeed, fixing your cash flow isn’t easy but it’s doable. What follows are some tips for doing just that.
Short-term financing such as a line of credit is a loan that a business pays off in less than a year. It can be used to make emergency purchases or to bridge any gaps between payables and receivables. Many banks have business credit card programs that can be used in this way.
Purchases of large assets such as real estate and equipment should ordinarily be financed with long-term loans rather than the business’s working capital. This allows your business to spread any payments over the average lifetime of the assets. Yes, you’ll be paying interest, but it’s worth it to preserve your working capital for business operations.
Recover receivables quickly
Bill early and collect quickly. To avoid late payments, issue your invoices as early as possible and make sure said invoices are clear and detailed. It may also be worth your time and effort to change your billing practices such as invoice frequency. Perhaps, instead of waiting until the end of the month, you can generate your invoices as soon as the goods or services are delivered.
If you’re delivering larger orders, you should also consider progressive invoicing. It’s common practice for companies to ask for a deposit. If the job is particularly large, you can even issue invoices along with set milestones. Always follow up on your overdue accounts. This is money owed to you and the longer you stay out of touch, the less likely you are to recover the amount owed.
Do you have inventory that’s becoming obsolete? Maybe you have equipment you no longer use. You should consider selling these assets to generate quick cash. Idle or obsolete equipment takes up space and ties up capital that can be used more productively. Further, equipment that has been owned for a while will usually have a salvage value equal to its book value or less, so a sale could result in a tax gain.
Excess inventory can quickly become worthless as new materials are introduced or customer requirements change. If in doubt, consider selling any inventory that’s unlikely to be put to use over the next 12 months. Your books will thank you.
Delay your payables
This might seem like an obvious step but you’d be amazed how often it’s neglected. Unless you have an incentive to pay early, calculate how late you can pay your vendors without risking the relationship (or late fees!). This ensures cash is kept in your account for as long as possible.
Keep your personal life separate
Cash flow problems can easily arise when you mix business and personal assets. If in doubt, form an LLC and ensure all your business and personal dealings are kept separate. To save on the expense, use a formation service instead of a lawyer to handle the paperwork.
Fix your cash flow
Cash flow problems aren’t to be taken lightly. Unchecked, they can easily sink your business. With these tips and tricks, you’ll be better equipped to handle any cash flow problems that come your way. And if you need more resources and guidance to achieve success in your life, business, and career, reach out to Sherre for a consultation!
Our mission here at Sherre Webb Life Coaching is to help you become your very best by always being aware of any areas in your life that you can level up in, especially in the areas of mental, physical, and spiritual health. We cover all things related to shifting your mindset and this applies to your money. Derek Goodman brings a wealth of information that can help you grow your business and it starts with becoming educated in the area of financial management. Stay tuned for more great tips by Derek Goodman that will help improve the financial health of your business.