Business Advice for Arizona

Cash flow is the life blood of every business. Cash flow is about timing — the timing of money coming in vs money going out. If you can’t control that timing, it will affect almost every aspect of your business.  Proper management of cash flow means that businesses will have the working capital they need to grow and to take advantage of the opportunities that may arise.

 

Not keeping a close eye on cash flow can cause ripple effects that could lead to business failure.  Very real problems can arise when cash going out overwhelms cash that is coming in (you may have presented invoices to your customers, but that doesn’t pay the bills).  

 

Here are some of the things that can happen:

                                                                                                                               

Your expenses go up when you can’t pay bills on time, because you are assessed late fees.

 

Planning is hindered — Plans you may have for a product launch, the addition of business equipment, advertising and promotion or for anything else that may promote growth can be derailed.

 

Problems in your workforce — Cash flow issues can cause panic among employees. You don’t want them to worry about getting paid.

 

Customer turnover — What if you have trouble paying suppliers and they begin to slow the pace of delivery of goods and services to you, which, in turn, causes difficulty in getting goods and services to customers? If lead times on product delivery get longer on a sustained basis, loyal customers won’t stay loyal that long.

 

So what can you do to streamline cash flow, both before problems occur and once they do? There are a number of tactics you can use.

 

• Track your cash flow — This is the first and foremost step to take. When you make a sale, if it is to a business customer, you may not receive cash for 30 days or more. Most businesses track booking and revenue, but you really should be tracking the cash. Invoice your customer as soon as the goods or services are delivered. Find out the answers to questions like these:  What triggers customer payments? What are the processing times for credit cards, debit cards, checks, etc? Work with your banker to get answers to these questions. He may have suggestions to speed up the processing. If you work with a bookkeeper or bookkeeping service, an accountant, or a software package, be sure you are tracking when receivables are paid and turned into cash.

 

• Offer good terms, get good terms — If you offer a small percentage discount or payment within 30 days, you’ll find that you’ll likely have cash in hand more quickly. However, be aware that you have essentially repriced your product into two components: actual product price and financing price. On the other hand, if you need to stretch payments, ask your suppliers for their absolute best terms– you may be surprised at the flexibility available to you. If you suppliers offer you discounts for paying within 10 days, be sure to compute the cost of not taking the discount.

 

• Offer customers multiple ways to make payments — Accepting more than just cash and checks — credit cards, debit cards, PayPalor services available through QuickBooks, for example, makes you more attractive to customers. Depending on the type of business, consider setting up your customer accounts so that they can access them on line and allow them to pay using a credit card or PayPal. These other forms of payment may speed up cash flow and they provide records that can aid bookkeeping.

 

• Make customer terms crystal clear — For customers that don’t pay at point of sale, invoice quickly and follow up. Putting a specific due date, such as July 25, rather than “30 days net” is the single thing that prompts people to pay. Prominently display your terms and conditions on all invoices.

 

If you do run into cash flow problems, the one thing you must do is communicate. Talk with your suppliers. Don’t avoid them.

 

Most important, knowledge is power. Work with your bookkeeper or accountant to develop a cash flow forcast if you don’t have one. If you are a rapidly growing business, you will have a cash shortfall. If you have predicted a cash shortfall, you can make funding arrangements. Line up funding before it becomes a crisis so that you will be able to take advantage of the business opportunity. If your bank cannot fund you, be aware that there are alternate business funding sources.

Posted by prector under business advice |