Some lessons come after years of experience, but there are few lessons that small business owners typically learn right away, including financial management rule number one: cash flow is the lifeblood of your business. If you keep enough cash on hand to ride out the ebbs and flows of a standard business day, week, and year, you’ll thrive. If you freeze your cash into excess inventory, tightly locked accounts, accounts receivable, and depreciating machinery, you might hit trouble when you experience a rough season. For most small businesses owners, few experiences are more painful than missing payroll and potentially losing valuable employees. So in order to keep your cash flowing, keep these tips in mind.
1. Keep inventory as lean as your business model will allow.
You’ll have to anticipate future events and read the patterns of your business cycle carefully, but within practical limits, keep your inventory low. You can’t pay your employees with raw materials and a warehouse full of unsold goods.
2. Open communication channels with your lenders.
If you hit a rough spot right now, would your bank and investors be able to bail you out? You’ll be more likely to receive the loan you need if you lay the groundwork and establish a relationship with your lender long before you need it. And keep in mind that a secured loan will be easier to obtain if you have assets like accounts receivable and well maintained equipment.
3. Make your money work for you.
Keep your unused cash in an interest bearing account. Consider an account with no minimum balance fees, or short-term, penalty-free CDs. Meanwhile, pay your employees from a bi-weekly payroll account using direct deposit so you can avoid the cost of check processing and distribution. And don’t transfer money to your payroll account too early; Let it stay in your interest bearing accounts as long as possible before payday.
4. Don’t pay vendors too early.
By the same principle, the longer the money stays in your own account, the more it earns in interest.
Buy used equipment and repair it instead of replacing it when it breaks. And keep your upgrades (including software upgrades) to a minimum. Don’t engage in this process until you absolutely need to.
6. Focus on accounts receivable.
Create a diplomatic, consistent and functional way to deal with collections issues. Include reasonable but clear penalties for overdue payments.
For more on how to control your cash flow and help your business thrive in a competitive marketplace, reach out to the small business management experts at Techneeds. If you are a small business owner looking for staffing firms in Salem, contact our team today.