15 Oct 4 Financial Habits to Boost Your Small Business Cash Flow
Cash flow is often referred to as the lifeblood of every business. And for good reason. It’s the living, flowing movement of your cash in and out of your business. Poor cash flow often leads to other business health issues, and it’s responsible for nearly 30% of all startup deaths. Scary, right?
Well, it doesn’t have to be.
Healthy cash flow starts with ordinary disciplined habits. If you can master a few basic best practices, you’ll set up your small business for financial success. In this article, we’re going to cover 4 super simple financial habits that lead to better cash flow management. Master these habits, and you’ll boost your small business’s survival chances.
1. Track Your Cash with Simple Bookkeeping Software
Often, cash flow problems are simply the result of poor bookkeeping practices. Simple as that. Other times, cash flow issues can be more complicated, but you won’t be able to pinpoint the problem if you don’t have complete awareness and control of your finances.
That’s where bookkeeping software comes in.
With simple bookkeeping software, you’ll be able to stay on top of your finances. Accounting software can help you create invoices, pay bills, and create cash flow statements and accounts receivable reports. These statements and reports support your cash flow analysis. With these insights, you’ll be able to identify wasted expenses or areas for investment so you can get your cash flow to a better place.
Bookkeeping software will also help you avoid penalties for late payments and keep your clients in check with their debt. Win-win. You can’t influence your cash flow without understanding it first—getting your books in order is an unavoidable step toward a healthy business.
2. Obtain a Line of Credit Before You Need It
The best time to look for financing is when you don’t need it. Secure a business line of credit in advance so you don’t have to settle or miss out on business opportunities. A business line of credit can help with seasonal demand, opportune investments, disasters, and gaps in your cash flow.
Want to hire some extra help around the holidays? Use your line of credit to cover the additional wages. Need to stock up on inventory during prime buying time? Cover the costs with a line of credit and pay back the debt with the resulting revenue. Machine unexpectedly break down? Upgrade or replace your equipment with your line of credit.
Surprises will happen. With a line of credit, you don’t have to panic—you have money on hand to keep the business operating and cash flow running smoothly. Your line of credit is flexible enough to deal with practically any business situation. Make it a financial habit to always keep a line of credit handy—you’ll be glad you did.
3. Prompt Your Clients to Pay on Time
One of the most significant impacts on cash flow islate payments from clients. Unfortunately, once your client agrees to payment terms, the ball is out of your court—but not entirely. There are a few things you can do to influence more timely payments:
- Incentivize Early Payments: Offer minor discounts to customers who pay before the deadline. If they have cash on hand, they’ll be more likely to go ahead and pay the bills ASAP instead of waiting until the end of the month. If they’re strapped for cash and trying to pay the bills, they’ll likely prioritize your payment to save immediate money.
- Implement Late Payment Penalties: Make sure customers know that failure to pay on time will result in accrued interest. Your penalty doesn’t need to be severe—just enough to persuade your clients to follow through with the agreed terms.
- Remove Troublesome Customers: Some customers just aren’t worth the hassle. If you find you have a few consistently unreliable clients, remove them from your future work. You don’t have to deal with the financial headache they cause coupled with your frustrated stream of reminder emails.
4. Utilize Accounts Receivable Financing
Waiting around for your clients to finally pay the bills? If you need capital, accounts receivable financing can help quickly convert your IOUs into cash. Accounts receivable financing is pretty simple. You basically sell your unpaid invoices in exchange for cash at a discount.
Sure, in an ideal situation, your clients would always pay on time and you could recoup 100% of what’s due to you. Sadly, that’s not how business works, but accounts receivable financing can help you deal with that unfortunate reality. It’s fast, relatively cheap, and helps keep your cash flow flowing.
A short-term small business loan is another option to drive positive cash flow quickly in the event you have unpaid bills. Small loans that are easy to repay can give you an injection of cash, and online lenders like QuickBridge can process loans in just a few days. When accounts receivable problems arise, the right loan can help you overcome the challenge.
Regardless of your management experience, your cash flow will ebb and flow throughout the life of your business. These four financial habits won’t make you immune to droughts or disaster, but they will put you in a better position to deal with any business situation.
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