Cash is the fuel that gets your business up and off the ground. You need it to pay salaries, operational expenses, and taxes. Owners often find themselves in a position of ‘feast-or-famine’ when it comes to small business cash flow, especially in the early start-up years. Unless your small business is well-funded from external sources, often, your revenue coming in is the primary, and many times, sole source of funding.
If your business does not maintain strong margins due to long sales cycles, seasonality, or increased competition, it can be challenging for you to keep enough cash on hand to sustain your business. Unfortunately, this small business cash flow situation can become the downfall of your business, especially If you have not survived long enough to have established a consistent income stream.
Most experts recommend that small businesses have anywhere from three to six months of operational expenses set aside. Seasonal businesses, companies that need to maintain an inventory of products, those that extend credit to clients, or face substantial expenses prior to completing a sale, will need far more cash on hand to cover expenses during those periods.
If your business does not yet have a cash reserve of three to six months of expenses, you will want to focus on improving your small business cash flow rather quickly.
Here are a few ways to increase cash in the near-future:
|Collect on receivables.|
|Have some slow-paying clients? Start sending out those statements, making phone calls, and adding fees if necessary to bring in payments for products and services you have already delivered.|
|Consider reducing your credit terms.|
|Perhaps offer a nominal discount to clients who pay upfront, or within a short period of time, or reduce the length of credit you are offering to bring cash in faster.|
|See where you can stretch out payments on your own expenses.|
|Reach out to vendors to ask about longer credit terms or installment payments on large expenses.|
|Contact your bank before you need the cash to establish a small business loan or line of credit.|
|This will allow you to work through options with your business banking professional without feeling rushed or desperate, and also will show the lender that you are on top of your finances and responsibly maintaining your bottom line.|
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