The cash flow of a business is the movement of money into and out of it. To be able to run an effective business you will need more positive cash flow (money moving in) than negative cash flow (money moving out).
As the old saying goes ‘Cash is King’ and this saying is something that should be in the forefront of all business owner’s minds. After all you need cash in the bank to pay for supplies, materials, wages and more to keep the business going.
Here are some tips to improve the cash flow of your business:
Do not wait for full payment on completion of the service.
I always recommend that you get paid up front or in installments, or at the very least take a deposit to start the work. You shouldn’t be waiting until after completion for full payment as you are using resources (possibly quite costly ones) as you go which means you are having to cover the costs yourself up front. This also means if a customer skips town you at least have partial payment for the work and won’t have lost out on as much money.
Send out Invoices immediately.
This is important as often business owners will leave their billing until a later day or time, but generally the later you send it, the later you will get paid. Cloud accounting programs make this so easy as they have mobile apps that email Invoices direct to customers so you can Invoice straight from your phone at the time of completion.
Keep your GST/HST in a separate account.
I always advise my clients to set up a separate savings account to transfer any collected GST/HST to. This prevents you from spending the governments money that you will inevitably have to send to them and it will also help you to see how much of your own money that you actually have to spend. It will also mean you won’t receive any hefty interest or penalties from them as you will be able to remit to them on time.
Keep great relationships with your suppliers.
This will allow you to possibly negotiate terms with them for all your orders. For example, if their normal terms are that the payment is due on receipt, you may be able to request to instead pay at Net 30. A great relationship with them could also come in very handy if you are having a major cash flow issue one month as you could possibly request to make installment payments instead of one lump sum for any bills owing at the time.
Look into Profit First.
Buy yourself a copy of the Profit First book and start implementing it in your business. It is a simple method that was designed with business owners with no accounting experience in mind. It has helped many business owners turn their businesses around and improve their cash flow immensely.