Cash Flow and Debt Management Tips For Your Business
Cash is the lifeline of your business, so it is vital to have cash coming in your business regularly so that you can meet your financial obligations. Cash is queen and it is through sales where we can get cash coming in.
Read: Will Revenue Generation Solve Your Cash Crunch?
All too often, especially during the start-up phase, business owners look to debt for cash infusions in their business. The problem with this is that over leveraging your business by taking on too much debt, is risky.
When you over-leverage your business that means that you have taken on too much debt. When there’s too much debt your cash gets sucked up by debt repayments and interest expense. That puts a choke hold on your cash flow because cash gets tied up in repayments.
Path to Profitability masterclass
If you find that you are in too much debt in your business and need to get out of debt and create a profitable business, then be sure to check out this free Path to Profitability masterclass today!
Small business cash management
Cash flow management is essential for business survival. Knowing when cash is expected in the door and when bills need to be paid by allows you to have an effective cash flow plan. Cash flow plans are vital for making payroll and other large expenses.
Cash flow plan
Monitoring your cash flow with a plan eases the stress of cash management. Accounting software have cash flow reports you can run and see what is expected to come in and out of the business over the course of the next month or two, and even year.
I use QuickBooks and love to refer QuickBooks to others. Be aware, if you use this link provided for QuickBooks and decide to purchase, I will get a bonus referral. I enjoy recommending QuickBooks to my clients as I find it’s a great software that will grow with your business needs as your business grows.
How to increase cash flow:
1. Bill your services immediately
All too often I see business owners who wait to send invoices to their clients. I recommend invoicing your client as soon as the agreement is in place because the sooner you invoice, the sooner you will get the cash in the door.
2. Review your accounts receivable aging reports
The accounts receivable aging report is a valuable report that your accounting software easily generates. This report shows you which customers have not paid their bill yet. This is important to manage.
3. Follow up with delinquent clients quickly
When you see that a client has not paid their bill within the allotted time, you need to follow up with them quickly (and politely) to remind them that their payment is due. This way, if there are any billing discrepancies they can be dealt with immediately while still fresh in their minds.
4. Offer discounts to those who pay earlier
When you want to get cash in the door as quickly as possible, you can offer discounts for early payment. This gives your client an incentive to pay the invoice earlier (to save some money) and allows you to get the money quickly.
What is credit management?
As a business owner you will want to manage your credit well, even if you are using your personal credit to fund your business. Credit management is managing the amount of credit you’ve been granted, how much you’ve used, and ensuring your debt ratios remain low.
The bottom line is during the start-up phase it can be difficult to pay cash for everything and tempting to pay using credit. I get it, you need to fund the things that you need to build your business. However, it is essential to manage your debt well to ensure you stay in business for the long term. Since 82% of businesses fail due to financial management, you will want to be on top of your financial management.
Read: A Business Finance Coach Will Help You Understand Your Money
