30: One Simple Tip To Increase Your Cash Flow Whether You Are Starting A Business, You Are Self-Emp
Cash flow refers to the money moving in and out of your business. When you have a positive cash flow, it simply means that you have enough money to manage the payments of any money that goes out of your business. If you have more money coming into your business than going out, you will have obtained a positive cash flow. Many business owners think the only way they can increase their cash flow is to increase their sales or increase their net income. This statement is partially true. You will increase your cash flow if you see additional sales, but what if you could increase your cash flow without adding any additional sales? If you are experiencing a tight cash flow, or maybe even a negative cash flow, there are things you can do in your business right now to help give your cash flow a boost without increasing your sales. I understand there may be times in your business when you really rely on having enough cash flow to get by, and I know this past year has been hard for a number of small business owners. If you are using a computerized software solution such as QuickBooks, you can easily generate a cash flow statement to see exactly where your business stands. Today, I am going to talk about one simple tip you can do to help increase your cash flow whether you are just starting your small business, you’re a solopreneur, entrepreneur, small business owner, virtual online bookkeeper or virtual assistant. Your cash flow will be a huge contributor to making sure your business will survive, so listen in and make sure you follow this one simple tip...
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Show Notes:
Cash flow refers to the money moving in and out of your business. When you have a positive cash flow, it simply means that you have enough money to manage the payments of any money that goes out of your business. If you have more money coming into your business than going out, you will have obtained a positive cash flow. Many business owners think the only way they can increase their cash flow is to increase their sales or increase their net income. This statement is partially true. You will increase your cash flow if you see additional sales, but what if you could increase your cash flow without adding any additional sales? If you are experiencing a tight cash flow, or maybe even a negative cash flow, there are things you can do in your business right now to help give your cash flow a boost without increasing your sales. I understand there may be times in your business when you really rely on having enough cash flow to get by, and I know this past year has been hard for a number of small business owners. If you are using a computerized software solution such as QuickBooks, you can easily generate a cash flow statement to see exactly where your business stands. Today, I am going to talk about one simple tip you can do to help increase your cash flow whether you are just starting your small business, you’re a solopreneur, entrepreneur, small business owner, virtual online bookkeeper or virtual assistant. Your cash flow will be a huge contributor to making sure your business will survive, so listen in and make sure you follow this one simple tip...
Welcome Back…You’ve heard the term “Cash Is King”, right? Well today I am talking about cash flow in your small business and just how important it is to make sure you maintain a positive cash flow. Positive cash flow is when you have more money coming into your business than is going out of your business. If you find your business running in a negative cash flow, you will soon find you are struggling to make ends meet, and you won’t have the funds to make payments that are due. You obviously want to find out what is causing your negative cash flow and you may need to inject personal funds to continue to operate or even take out a loan or line of credit. These are all things you, as a small business owner, hope you never need to do, so what can you do to make sure you don’t get to this point?
One of the quickest ways to increase your cash flow is to look at your accounts receivable. Your accounts receivable list will show you each of your customers who still owe you money. If you are looking at an accounts receivable aging summary, not only will it show you how much each of your customers owes you, but it will also show you how past due each of their payments are.
Staying on top of your accounts receivable listing will not only help your cash flow, but when you find a customer is extremely past due on paying an invoice, it gets harder and harder to collect these funds from them. Having a strict collections process in place so that you know exactly what you need to do if you have a customer that falls behind in their payments will be crucial. Make sure you are being proactive and send reminders when your customer’s due dates are approaching and whenever your customer has a past due balance send out collection letters as soon as possible and don’t be afraid to charge late fees for past due balances but be up front with them about these fees. Having late fees may actually help you get your payment faster, and you need to consider what this late payment is doing to your business. You may be able to use these late fees as a bargaining tool as well, when you tell them you will write off the late fees if they pay by a specific time. Another thought here is if you have a customer who has an outstanding balance or even a reputation for paying late, you may want to require them to pay up front. Why bother with payment terms if you know they are not going to abide by them anyway?
Make sure you are sending out your invoices right away. You know you won’t get paid until your customer receives their invoice. By sending out your invoices right away, you will speed up this process. If you don’t send your invoices out for a couple of weeks, that will mean you will need to wait a couple of weeks to receive those funds. By being prompt and invoicing on a regular basis, you are starting the clock for any terms you may be offering to your customers. I know as a business owner, you are busy, and you may be putting invoicing your customers off for weeks or even months, but I would recommend you take a deep look at your schedule and find some time to invoice your customers at least on a weekly basis. Not only will you start getting paid sooner, but your invoicing process will be much smoother and the time you spend invoicing each week will be much shorter than if you put your invoicing off for weeks. If you absolutely know you are unable to do your invoicing on a timely and consistent basis, you may want to look into hiring a bookkeeper to help you with this.
When you are invoicing your customers, you may want to analyze your payment terms and make sure they are working for your business. If you are offering terms of net payment in 30 days and you know you are falling short on your cash flow, maybe it is time to change your payment terms. If the net payment in 30 days doesn’t seem to work, you could shorten it to net payment in 20 days to help your cash flow with these additional 10 days.
You could even offer discounts for early payments. Rather than having your customers wait until the due date to make their payments, you could offer a discount if they pay earlier. This could be a win/win for both you and the customer, especially if your customer isn’t having any cash flow issues and they want to take advantage of the early payment discount. You would need to decide how much of a discount you would offer as well as the timing of the early payment. A popular early payment discount would be a 2% discount if paid in 10 days.
If you currently don’t offer credit card payments or even ACH payments, you could offer these payment types to help expedite your payments. By offering credit card payments or ACH payments, you may find it easier for customers to pay. They don’t need to hand write a check, get an envelope ready and send the payment in the mail. It is quick and easy but do take into consideration the processing fees and adjust your pricing if necessary.
Rather than even getting into the invoicing game, you could require all of your customers to pay up front. This is getting to be more and more common, and customers don’t seem to mind. By doing this, the customer pays right when they place their order. If you do need to invoice the customer, the payment terms are due upon receipt. This means that as soon as your customer receives their invoice their payment is due. When you offer these payment terms, you really want to make sure you are on top of invoicing your customers. Again, if you wait to send an invoice to a customer for one month and they pay as soon as they get their invoice, they are paying the invoice as soon as they receive it, but, it has still been about 30 days since they made their purchase.
One last thing. Many business owners think their profits are equal to their cash flow and this is a big misconception. This is exactly why at the beginning of this podcast I mentioned that you could increase your cash flow by increasing your profits, but depending on your situation, you could also still have a negative cash flow if you have something else going on in your business. This is why I am saying if you want one simple tip to increase your cash flow you should look at your accounts receivable listing and everything that is tied to your invoicing and accounts receivable in your business. Since cash flow is defined as the money moving in and out of your business, you want to ensure you are doing everything you can to keep the money moving in as fast as possible.
I also want to mention, if you are interested in starting, growing or scaling your bookkeeping business, my 4-step framework for creating a profitable bookkeeping business will be opening soon. In 3 months or less, you will gain the confidence, skills & knowledge to create a profitable bookkeeping business without feeling alone, overwhelmed or confused about your next steps. You can sign up for the waitlist and be the first to know about this exciting opportunity. To make sure you get all the upcoming notifications, go to www.FinancialAdventure.com/Elevate-Waitlist - I’ll post a link where you are listening to this podcast for you to sign up as well.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.
