Cash Flow Tips

5 Tips on How to Help Improve Cash Flow in Your Small Business

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One of the biggest challenges that many small businesses face is following up on late payments, which can consume valuable time and resources. Having no cash to hand to take care of day-to-day expenses is a major reason why many businesses fail. In this blog, we'll run through some tips to help you maintain a positive cash flow for your small business:

5 Tips on How to Help Improve Cash Flow in Small Business -

Encourage customers to pay on time

The easiest way to eliminate cash flow problems is by ensuring, as far as possible, that you receive payment for goods and services on time. There are a number of ways you can do this. Try offering early payment discounts to customers who pay up front, for example, or shorten your payment terms from 30, 45 or 60 days to immediately after a project is completed. Asking for payment at specific stages of a project, or when certain milestones are completed, is another way to ensure the money keeps coming in.

Delay your payables

You can buy time by delaying or extending payables to vendors who don’t demand immediate payment. However, you should be careful not to damage the working relationship with your distributors. Only delay your payables if you are sure that your suppliers are OK with it - and watch out for any late fees!

Provide numerous payment options for your customers

Most payment delays are due to restrictions imposed by certain payment methods - the reasons checks are less popular these days is because of the time it takes for them to clear. Most customers will be happy to pay with credit or debit card, but consider accepting direct bank transfers, PayPal payments, and e-checks if you don't already do so.

Use the right cash-flow management tools

You need the right software to keep track of money inflow and outflow. With the right tools, you can save time and have a clearer, more informed picture of your payables and receivables.

Consider short-term financing

Taking out a short-term loan can help your business if you're facing a shortfall due to delayed payments from your clients. Short-term credit helps to cover the gap between receivables and payables, or settle emergency purchases. You can use these funds to pay your distributors. Fast small business loans from a strategic funding source like LVRG is the first step in growing your business.

For more assistance on how to finance your small business, or to find out what small business capital loans you qualify for, contact LVRG today. We offer various small business funding options to keep your business running without any hitches.

 

How can a profitable business have cash flow problems?

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Before we demystify how a profitable business can have cash flow problems, it’s important to understand the difference between profit and cash flow. Cash flow represents the closing balance of a business after deducting the cash paid from the cash received in a given trade period. Any business needs to have a positive cash flow to handle the day-to-day expenses. On the other hand, profit represents the balance between the revenue and expenses incurred after every sale.

Recent studies show that more than 80% of small businesses fail due to cash flow problems. This statistic is alarming, yet sadly many of these closures could've been avoided with the proper cash flow management system in place. And, accessing capital at the right time. So, what could be the main cause of negative cash flow for a profitable business?

Growing too fast

Most entrepreneurs get overwhelmed by the progress of their business and seek to open other locations too soon. This can lead to over-trading, which puts a lot of pressure on short-term finances. The main problem occurs when the new locations have to rely on the already established ones before they start generating profits. This can often lead to major cash flow problems.

Small Business Growth Capital, Explained. And When Your Business Needs It.

Advanced payments

Paying for expenses in advance could mean that there will be more cash going out than coming in. For instance, paying for insurance has a negative effect on the cash flow because there will be no money flowing in to cover this deficit. Such expenses are necessary, but they reduce the amount of cash available to keep the business afloat.

Giving too much credit

While offering goods and services on credit can attract more sales, it can also lead to major cash flow problems. Late repayments and bad debts leave your business with no cash to operate.

Acquiring long-term assets

Using the cash you have to buy new equipment for the business will create a big gap, because more cash will be going out than coming in. It's good to budget for such expenses after a trading period, once the accounts have been reconciled and profits identified.

Paying for loans

Loan repayments can also have a serious effect on cash flow because once the money is paid, only the loan interest is recorded as an expense when calculating profits. However, loan repayment means that more cash will be going out, not just the interest. This leaves a negative balance on the cash flow, which may not be reflected when you come to calculate your profits.

You can avoid cash flow problems by seeking professional financial assistance by LVRG, the #1 name in small business cash flow funding. Click here to contact us for the best financial advice pertaining to growing your business, or click the button below to apply for funding.

 

Why Every Small Business Needs a Cash Flow Forecast and 4 Bonus Tips for Growth

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Statistically, roughly 80% of all small businesses will fail due to cash flow challenges. And sadly, most of the time these closures could've been avoided, with the right plan in place. Many small business owners seem to feel that cash flow forecasting is only for businesses in a cash crisis. Well, nothing could be further from the truth. This is one of the reasons so many small business owners wind up in a cash crunch.

Why do small businesses need cash flow forecasting?

A cash flow forecast can be a valuable growth tool, allowing you to make sure you have the right amount of money at the right time. Forecasting your cash can help you anticipate cash gaps and surpluses well in advance. Too many small business owners confuse profit with cash flow. Even a profitable business can be forced to close its doors if it runs out of cash. But a solid cash flow forecast can help avoid that, and let you know in advance when cash will be low so you can take steps to keep from running out. It can also help you find ways to maximize how much use you can get out of your cash. Here’s why every business needs cash flow forecasting.

Notice cash shortages

A robust cash flow forecast can help you spot cash gaps far in advance, allowing you to take action. This means that you can negotiate better loan rates, tighten up your credit control systems, and manage expectations with your suppliers.

Forewarned is forearmed and being aware of impending cash shortages can mean the difference between saving your business and waiting for insolvency. A cash gap may mean that you have to apply for funding.

Use a cash surplus to grow

For growing businesses it’s important to notice, and take advantage of, a cash surplus. With cash in the bank you have the opportunity to invest your money and grow your business. Seeing a healthy figure in your bank may be great but dust is the wrong thing you want your cash to be accumulating.

Cash flow forecasting enables you to know exactly how much you can reinvest in your business and when. By including a cash flow forecast in your financial management systems you can ensure that your business grows at a safe and healthy pace.

Tracking Your Spending

A cash flow forecast spreadsheet puts these together, breaking down incoming and outgoing cash by week, month, or quarter. A simple forecast would have entries showing cash on hand at the beginning of the period, expected expenses during the period, as well as expected receipts during the period. If the total at the bottom of any period's column is negative, a cash flow crunch may loom and action should be taken to avoid running out.

Many businesses have lines of credit to help with recurring cash shortages, and a one-time shortfall can be filled by taking out a loan. But, ideally, your cash flow should be managed to avoid these shortfalls and reduce borrowing costs in the long term.

Gain confidence in your financial systems

Profitability doesn’t necessarily mean that your business will grow, or that you have cash in the bank. A profit and loss sheet will only tell you part of the story. Without a strong grasp on your available cash, you’re not getting a true picture of your business’s finances.

Determine your break even point

You should know when your business will become profitable, not because it will affect your cash flow, because it won’t, but because it gives you an early goal to strive for and a ready-made target for projecting future cash flow. Negative cash flow and negative profits make for a grim combination. Focus your efforts on managing your cash flow with an eye toward reaching that moment when you realize your first profits.

Focus on cash management, not profits

Use your break even point as a benchmark. After you reach break even and your business is profitable, you still need to manage your cash flow, of course. You have reached another stage of your business’s life.

Cash flow forecasting can show you where you need to tighten payment terms, cut operating expenses, or hire new staff to carry the workload. Seeing the minutiae of how your cash actually moves in and out of your business can help you to identify areas in which you can improve cash inflows and outflows.

Regular cash flow forecasting is an essential part of business planning. It can make you aware of changes to your finances before you hit crisis point. Improving your awareness of how and when money is moving in and out of your business strengthens your ability to make the right decisions at the right time.

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BONUS!! Here’s 4 Simple Tips to Managing Small Business Cash Flow

Assess Your Fixed Expenses - Fixed assets are typically the easiest to manage. This includes items like loan repayments, rental fees, and insurance, which are typically due on specific days of the month. The important thing to manage here are the dates on which these items are due. Try to put some distance between the dates on which you receive funds from invoices and customer payments, and the dates on which you make your fixed payments each month. With enough days separating the two events, you may be able to bank your cash and create a small bit of revenue from interest depending on your account. Every little bit counts, and creating an internal system like this in the early days of your business can pay off later. As you grow, that small revenue bump may grow, too.

Estimate Variable Expenses - While some bills will always fluctuate from month to month, it is possible to determine a reasonable, educated range of your expenditures. For instance, the power company may be able to help you determine a close estimate of your monthly electric bill. When you are making these estimates, be sure to use the higher numbers; it is almost always better to estimate that an expense will be higher, rather than lower. Whatever is left over can be placed in reserve for an end-of-year bonus, a capital investment, or to help grow the business.

Regulate Customer Payments - If you offer some sort of payment plan for your customers, or if they have recurring fees such as membership dues, take stock of when these payments are due. If possible, sign up your customers on an automatic debit system so that you don’t have to worry about them forgetting any payments. It can also be beneficial for some of your customers, as they won’t have to worry about an account lapse.

Invoice Early - Keep strict records of your work, and make sure that you send an invoice to your customer as soon as the job is done. The more you delay, the longer it tends to take clients to pay. Send an invoice via e-mail the very day you are finished, and then consider following up with a paper copy. With an e-mail, you will have a time-stamped record of the invoice. It may be worthwhile to investigate online payment systems as well, which allow you to send an invoice through their website, and then receive an electronic transfer. Be aware that some of these services will take a percentage for handling the transaction, and that will affect your cash flow.

Simple adjustments can make a huge impact.

 

How do I manage cash flow in my local small business?

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It's not enough to earn a profit. Even a profitable business can be forced to close its doors if it runs out of cash. But a solid cash flow forecast can help avoid that, and let you know in advance when cash will be low so you can take steps to keep from running out. It can also help you find ways to maximize how much use you can get out of your cash.

Here are a few things that should go into forecasting your cash flow:

Reporting Accounts Payables and Receivables

A key part of a cash flow forecast is an accounts receivables report that shows how quickly customers pay. Create a spreadsheet and list all invoices sent out each month. Also, list the dates invoices were sent and the dates payment was received. Calculate the average number of days invoices were outstanding before being paid. This number helps estimate how much cash will be available for future dates. If payments take an average of 45 days, it will take that long for any invoice to turn into cash.

Cash Flow is the Lifeblood of a Small Business and Critical in its Growth.

Next, make an accounts payables report showing when bills must be paid for materials, supplies, wages, rent, and other essential items. List each expense, including when bills are received and when they are paid. Many vendors offer 30-day terms. Others require payment on specific dates, such as a landlord who may expect rent on the first of the month. Employees are usually paid in arrears, receiving paychecks from as soon as a week to as long as a month after they have performed their work.

Strong revenue but still don't qualify for traditional financing? A business cash flow loan may do the trick!

Tracking Your Spending

A cash flow forecast spreadsheet puts these together, breaking down incoming and outgoing cash by week, month, or quarter. A simple forecast would have entries showing cash on hand at the beginning of the period, expected expenses during the period, as well as expected receipts during the period. If the total at the bottom of any period's column is negative, a cash flow crunch may loom and action should be taken to avoid running out.

Many businesses have lines of credit to help with recurring cash shortages, and a one-time shortfall can be filled by taking out a loan. But, ideally, your cash flow should be managed to avoid these shortfalls and reduce borrowing costs in the long term.

Paying and Sending Invoices

Two goals of cash flow management are to be paid as quickly as possible while also paying suppliers no sooner than necessary. Getting paid quickly starts with invoicing promptly and accurately. Send invoices immediately when an order is shipped or when a service is provided. Consider electronic invoicing by email, or using an online invoicing system. Make sure invoices are accurate and have all the information customers need to make payments, including the address, tax identification number, phone numbers, and contact person for any questions.

Cash Flow Management Tips to Optimizing & Scaling Your Small Business

To manage accounts payables, start by prioritizing payments by due dates. The objective is to pay them when they are due, but not before. Sometimes it may make sense to make payments after the due date, if the cash can be put to better use elsewhere. If you ever need to consider paying a bill late, be sure to calculate the interest rates and any late fees your vendors may assess.

To encourage customers to pay quickly, consider offering discounts for faster payments. When customers are chronically late, consider tightening credit terms. You can also specify late fees or interest charges for late payments.

Managing Your Cash Flow Needs

Managing cash flow is vital for the health of any business, and you should look for ways to improve your cash flow while also protecting relationships with your vendors and customers. Creating a smart cash flow forecast can help maximize growth for your business—by spotting trouble before it arrives and making sure you always have enough money on hand to keep your business growing.

Hope these tips help! Click here for some local small business marketing strategies?

 

A cheesy pun on life insurance that may just save your business.

There's an old time pun that asks, when is the best time to buy life insurance? The answer being, the minute before you know you're going to need it. While this old pun isn't all that funny, the premise is highly relevant to owning a small business. Life insurance to a person, is cash flow to a business. No life insurance? No protection. No cash flow? Well, you can guess the ending there too...

We speak with small business owners every single day who are in desperate need of a loan to cover emergency situations. The reality is, at any given moment a pipe could burst, a machine can break, an opportunity for expansion may present itself, or an offer to buy a large quantity of inventory at a deep discount may pop up. Bottom line, we don't know what the future may bring; so it's best to be prepared.

Did you know - With a small business line of credit, you can borrow up to $100,000 and pay interest only on the money borrowed. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit. Need to manage cash flow? Buy inventory? Pay for a surprise expense? Then a business line of credit makes sense. After-all, who wouldn't want a cushion of cash on hand for a rainy day? Click here to learn more.

Cash flow doesn't have to be complicated. Indeed, most cash flow problems have common causes. The following are the three factors that are most often at the root of cash flow problems:

1. Not Paying Attention to Expenses - Many businesses end up in a cash flow crunch due to unexpected expenses (for example, costly repairs to equipment, replacing malfunctioning technology or a natural disaster) or too much money going out each month (such as ongoing expenses that have quietly crept up to an unsustainable level). Resolving a cash flow crisis requires that business leadership take a renewed, vigorous look at their ongoing cost structure. Every business owner should have a rigorous process in place to track expenses on a monthly basis and project future expenses for the months ahead.

2. Uncertainty About Future Cash Flow - Some businesses are so caught up in the day-to-day grind of getting work done and paying bills that they don’t take time to anticipate what's coming in the next few months. Maintaining healthy cash flow requires a long-term vision.

3. Slow-Paying Customers - Many cash flow problems are caused by a delay in receivables, such as when a company’s customers or clients are slow in paying their bills. Did you know small businesses have $825 billion in unpaid invoices? Far too many companies allow their customers to become delinquent in paying them, often without fully realizing the problem until it is having a major impact on their cash flow. Business owners need to put consistent policies and procedures in place to ensure that customers pay in a timely fashion. It's especially important to clarify your payment terms and expectations on every invoice, whether that’s “payment due within 30 days” or “payment due upon receipt.” Don’t assume that your customers automatically know what to expect be clear about when you expect to be paid for your products or services.

More than anything, small businesses must be prepared to fuel their business with operating cash flow at all times. By planning at least the worst, average, and best case scenarios for the near future, small business owners can minimize damage from external influences, while maximizing opportunities during an upward momentum.  All of these can be best achieved through an efficient and stable cash flow, often supplemented by obtaining small business capital. Be proactive, plan ahead, and create a relationship with a reputable funding source now, not in an emergency situation when you're forced to accept anything that's thrown at you. As always, we're here to help!