As the old saying goes, “The money comes, and the money goes.” But if you’re spending more money on expenses than your company is bringing in, you have a serious problem.
Your bottom line, which is your gross income minus your expenses, will be in the red. Unless you have a professional accountant who can juggle the books to keep things going, your company can’t operate successfully without enough money to cover its bills. If this sounds like your business, or, you’re just looking for ways to improve your financial statements, then you need to know five tips on how to increase your company’s cash flow.
1. Make Billing Your Customers a #1 Priority
You can create a brilliant advertising campaign to bring in new customers. You can make fair pricing, quality and customer service top priorities for your small business. Business can be booming for you, but if you’re not billing your clients promptly and getting the money due you, then the rest won’t matter.
If your business has a customary Billing Department, you need to make sure the job is getting done on a timely basis. If one employee runs your small business- you- then you need to carve time out of your work day to get the job done. If that’s not a feasible option, then you need to hire a helper or contract the job out to a billing company.
Case-in-Point: A small business I know of hired a person who has the duty of billing their customers on a monthly basis. Some months he/she gets so busy with their other duties that the billing doesn’t get done. This results in infrequent invoices, and in turn, rare payments.
The problem then snowballs until the company’s cash flow is in dire straits. The biller then has to become the collections department. He/she has to get on the phone and try to extract money out of their clients. You can imagine how unhappy some of the clients are to get four phone calls instead of regular monthly invoices asking for payment.
2. Insist On Partial Payments or Retainers
Call an attorney to get a case started for you, and he or she usually won’t lift a finger until you’ve paid a retainer. Their service hours are then subtracted out of that prepaid amount of money. If they use up the retainer and work extra hours for you, then you’ll get a bill for the additional cost.
A good way to increase your cash flow is to insist on a partial payment or a retainer before the job is even started. This practice will solve two problems at once. 1) You’ll have positive cash flow everytime you get a job. And 2) If the customer has a balance to pay you after the job is completed, and they fail to pay any more, at least you won’t be out the entire balance.
3. Be Careful Who You Deal With
If you require a prospective customer to give you a retainer or a down payment, and he or she balks, take that as a warning sign. If they can’t come up with a fraction of the total bill, then how can you expect them to pay you the full amount?
Ask for credit references, if need be, and check them out to make sure the person you’re about to deal with is creditworthy. Be weary of low check numbers, new accounts, and out-of-town checks.
4. Increase the Methods of Payment You’ll Accept
I know of another small business that was looking to improve its cash flow. They had a killer who efficiently sent out invoices like clockwork every month. She also made collection calls from time to time when needed. But still, the payments were coming in as fast as the company owner wanted them to. The biller mentioned to the owner that more and more customers asked to pay their bill with their debit or credit card. At that time, the only payment methods they accepted were cash, checks and money orders. The owner agreed to give it a try, and he’s never regretted that decision. Instead of waiting for the following month to receive a payment, clients can now pay their bills instantly, and the small business can collect their cash in just a couple days.
5. Justify All of Your Expenses
I heard of another small business- that’s closed up now, by the way- that did a good business and made a lot of money. However, the owner insisted on buying “the best of everything” for the office. As a result, the cost of the company’s expenses took a big bite out of the income. Sometimes creditors had to wait for payment. Sometimes, the employees wondered if they would get a paycheck for the week. It was that bad.
For example, when a $50 office chair would work just fine, the owner insisted on a $200 seat instead. “It made a better impression on the customers.”
To avoid this crunch on your company’s cash flow, make sure you can justify all of your expenses before you spend the money. Look for cost-saving measures throughout the operation without compromising the quality of your product or service.