How to Keep Cash Under Control in Your Small Business

04/05/2017 07:26 pm ET

Cash goes into to your business like gas goes in the tank of your car to keep everything running. You can have business, but if your customers don't pay you timely you could be out of business quick. Cash flow enable you to pay your suppliers, employees, and maintain inventory to stock your shelves. When money slows to a trickle, you immediately feel the pinch. As the business owner, you don’t need the constant stress that comes with poor cash flow management Here are a few ways to keep cash under control in your small business

Look for the Signs of Trouble

Create a cash flow management system. Have a set day that you cut checks, don't just pay an invoice because it comes in. Pay your bills only once or twice a month. If you use contractors in your business, institute a pay when paid system. You don't want your car sitting in your driveway unable to run, with no gas in it. Negotiate with your vendors as favorable terms as possible. If your money gets misdirected or suddenly halts, your business is in serious trouble.

One of the biggest signs of a pending cash crisis is if you're spending more money than you bring in every month. Or if you’re spending down your operating capital, and holding your breath until the next check is coming. You need an emergency account for your business, just like your household. Look for way to manage your expenses as well. Could you operate with fewer employees or contractors? Could better document management, invoicing software or more consistent payment terms help you? Try to negotiate monthly retainer agreements with your customers, or transfer as many customers as you can to EFT or electronic funds payments. Waiting for a check will definitely stifle your cash flow.

Establish Collection Procedures

Get to know people accounts payable at all your customers. If there’s any issues getting paid these are the people who can fix the problem. Don’t believe an invoice automatically translates into a signed check. It doesn't. You want to make sure you are set up as a vendor in their system, find out up front if they pay on a net-30, net-60, or net 90 payment schedule in place. Be sure to send your invoices out on time. Some large companies might have separate payment terms for small businesses, be sure to ask

Develop a collections protocol. First, If you hear nothing for 30 days, on day 31 send a reminder notice or make phone calls to inquire about the status of your invoice. If you have on-going problems in this area, consider working with a collection agency. Before you finalize a contract, detail your payment terms. Let your customers know when the deposit, milestone and final payments are due as well as the consequences for missing a due date.

Get in front of cash issues

You might need a line of credit, to manage ongoing cash issues in your business. If you’ve been in business at least two years you can apply for a credit line from a traditional bank. Banks only lend 10% of your gross revenue in a line of credit, so know your numbers before you determine your ask. Don’t wait until you are in a crisis to talk with the bank. Apply for credit when you win a new contract

Every business needs a budget. And it works best when you keep it current. As cash flow changes, revise your budget to align with current receivables and expenses. Evaluate your budget every quarter with your accountant. Make any adjustments that will improve cash flow management so you don't find yourself with money troubles.

By getting on top of cash flow management early and using up to date financial statement along with a budget, cash flow will be manageable. For more small business advice, sign up for my weekly newsletter. I'm always offering unique tips and tricks that entrepreneurs can put to work for themselves immediately.

This article with originally published as How to manage cash flow in a small business on www.succeedasyourownboss.com

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