For all companies, cash flow is the keystone and this is particularly true for small businesses, as they can have a much harder time convincing banks and lending agencies to issue a loan owing to the high risk involved. To help your business stay afloat in tough financial waters, here are some cash flow management tips to keep in mind.
Use Cash Flow Management Tools
Small businesses are slowly discovering the power of software solutions to manage their finance. Consider using small business accounting software to help manage your accounts and keep a closer eye on your cash flow. Apps like Xero and QuickBooks include functions that allow you to keep everything organised in one place, and you can also share access with your accountant so work can be done collaboratively.
The biggest advantage of using smart accounting tools is the ability to generate rich reports that will give you insights into the factors that affect your business’s profitability.
Keep an eye out for economic indicators
To successfully weather any financial storm, one of the key factors is keeping an eye on the important financial market indicators of economic conditions. You can prepare a report for your estimated cash flow projections for the next financial year. This will help in deciding what financial changes need to be in your business plan. For example, if you’re running an electrical business and the price of a certain spare part is expected to rise in the coming year, you can estimate the total increase in running costs and plan to deal with it in advance to avoid any untoward operational pitfalls.
Keep a track of customer credit
When running a field service company that caters to businesses (on a retainer) rather than individuals, it is important to keep a check on unprofitable customers, i.e., whose cost to maintain is more than their revenue. Flag customers that have a tendency to delay payments, and consider dropping them altogether if you find they are serial offenders. You might find it is more tedious to constantly follow up with such customers than it is worth to keep them on your books. Ensure you perform credit checks on new customers and tactfully refuse those to whom you find it is not feasible to extend credit to. If you do not want to lose out on business, you can also offer a discount instead of credit.
Stay proactive when it comes to payments
When running a service-based business like electrical or plumbing services, it isn’t uncommon for customers to delay payments. While you may think it is polite to not ask for prompt payments, it can actually put out an impression that you are not overly concerned about when you receive your money. Keep some measures in place to encourage speedy payment. For example, ensure due dates are clearly highlighted in all your invoices and send out overdue notices whenever required. If push comes to shove, don’t hesitate to approach collection services if payments are not being met. The overhead cost of hiring such services is always preferred over the option of never getting paid. You can also use field service apps that provide in-field payment solutions, which allow you to invoice the customer as soon as the job is complete.
