As a small business owner, cash flow can be a major concern. You need to make sure you have enough money on hand to pay the bills and keep your business running smoothly, whether you’re an LLC, partnership or chose to incorporate. There are many ways to manage cash flow in a small business, but these five tips from Freedom Beyond Wealth can help you get started.
1. Prepare For Operating a Business
Obtaining an MBA online can be a great way to prepare for running your own business. With courses focused on management, finance, and accounting, you’ll gain the skills necessary to keep your business running smoothly. Additionally, online programs offer the flexibility to work at your own pace, allowing you to balance your studies with other responsibilities. This may help you develop the discipline needed to successfully manage a business while also ensuring that you have the knowledge and expertise necessary to make informed decisions.
2. Match Your Business Structure With Your Goals
Part of keeping a healthy cash flow requires revisiting certain elements of your business that may need to change based on the growth and evolution of your venture. For example, do you need to reconsider your business structure? If you’ve been a sole proprietorship, it may be time to switch to an LLC or to incorporate. Or maybe it’s time to create an offshoot of your business, complete with a new name (i.e. DBA) to advance a different product or service. And it never hurts to revisit your business strategy. If you need to revisit the steps required for launching your venture, check out a helpful guide.
3. Incentivize Customers to Pay Early
If you have a number of invoiced customers, Octet notes that one way to manage cash flow is to offer early payment discounts. An invoice discount is just what it sounds like. You can, for example, offer a 5% discount on all invoiced sales if they’re paid upfront or within 10 days.
Incentivize your customers to pay early to help you manage cash flow because it takes a major payment obligation off the books. Another strategy is to ask for a deposit before beginning a new job. This ensures you have cash set aside for the work.
4. Improve Inventory Management
MRPeasy points out that an effective inventory management system is essential for managing cash flow. Having too much inventory ties up cash and other assets, which can prevent you from growing. It can also result in more money spent on storage fees. If you find yourself with extra inventory, work to sell it quickly.
5. Have an Emergency Cash Reserve
You never know when an emergency might strike. For example, a key employee may have to leave, or a global catastrophe might interrupt your business. Having an emergency cash reserve available in these situations is vital to managing cash flow and continuing to operate smoothly. Even if you can’t afford to set aside a large sum every month, take the time to calculate your break-even point and monthly expenditures, and then make sure you have enough cash to cover them.
6. Hire a Business Consultant to Monitor Cash Flow
Hiring a helping hand to keep an eye on the day-to-day financials of your business is a great way to ensure healthy cash flow. A business consultant can develop a management system that works for your company.
Online job platforms are great for finding experienced business consultants. When assessing potential business consultants, weigh their services based on these three metrics:
- Turn-around time
Benefits of Healthy Cash Flow Management
Maintaining a healthy business cash flow by using software, properly forming your business structure, incentivizing early payments, improving management, and hiring a consultant can help you grow your business.