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Small Business Cash Flow

Small Businesses Need to Mind their Cash Flow

It’s been said that "cash is king" and that certainly can be the case as it relates to success in business. If you have invoiced your customers for receiving your product or service, it’s not enough that you made the sales - you still will have to wait to be paid. It is liquidity that pays the bills. Waiting on invoices to be paid hinders your ability to remain liquid until they convert into cash.

Managing the timing of the money coming and the money going out for a small business is imperative. There are many ripple effects of the problem of too much cash going out and not enough cash coming in.

  • Late fees are assessed when you can't pay your bills when they are due. - This cycle can dig its own hole.
  • Plans must be put on hold. - You may want to purchase additional business equipment or software, launch a new product, promotion or advertising and have to postpone it. Your business becomes stagnant when growth-oriented plans can't be realized.
  • Employees become unsettled. - When your employees have questions about being able to cash their paychecks they begin to question the viability of your business. This could lead to employee turnover with panic causing workers to jump ship.
  • Customers become dissatisfied. - If you have trouble paying your suppliers it's likely they will respond by slowing down the pace of delivering their goods and services to you. This can have a domino effect on your customers. If product delivery gets delayed and on a sustained basis, they will quickly change their loyalties to your business and take their business elsewhere.

You should rein in your tactics before the problems occur in order to stay out of the hole. Track your cash flow in detail. Know when cash will be available after you've delivered your product or service, how long it take funds to be available at a bank, processing times for credit cards, debit cards, checks, etc. Be aware of when receivables come in and then become available as cash. Also, give your customers multiple payment options. It will make your business more appealing.

Small Business Cash Flow

Managing your cash flow well can lead to success

Offer good terms (i.e., a small discount for payments made under 30 days) and you may get cash in the hand more immediately. Also ask your suppliers for their best terms. They may be more flexible than you'd have thought.

When you are buying office furniture and supplies, consider cutting back on costs by shopping at used furniture outlets and try to get the best possible terms from your vendors.

Factoring companies are not for everyone, and usually not a good long-term strategy but it may be a good temporary fix if you can get a fair advance on unpaid invoices from a company you can trust. Develop good relationships before you have the need if you want to lessen the stress.

Above all else, communicate your situation if you run into cash flow problems. Be honest and see what you can work out with your suppliers. They can help you get back on track. Use the knowledge and assistance of your bookkeeper or accountant to develop a cash flow forecast. Remember, it impacts every aspect of your business, however big or small it may be.

About the Author: Sarah Levy is a blogger for Merchant Accounts Express covering topics from small business marketing to the latest in payment technology. Read more of Sarah's writing on the Merchant Express blog and follow her on Twitter @Sarah_Levy81.

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