Every small business has its own story, but there’s no plot without cash flow.
Managing cash flow to make sure enough money is coming in to pay bills and other debts is simply the key to survival. It’s one of the toughest parts of owning a business as the quest to maintain consistent cash flow requires close attention to nearly every aspect, such as managing inventory, scrutinizing accounts receivable, and following up with customers who are behind on their bills.
Know the Truth about Your Business
At least once a year, it’s a good idea to create a cash flow forecast. This information will help you see clearly and honestly if your business has enough cash to operate or the resources to expand. The forecast will also show exactly when more cash is going out of the business than in. One of the best templates to help you get started is featured on the website for non-profit organization SCORE.
For times of the year when cash flow is lower, here are some quick ways to increase it.
Have a Business Sale
If you need to improve your cash flow quickly, you can always offer a discount on some product offerings or a special bonus to motivate customers to try your services. But make sure it doesn’t become too much of a habit, and set a time limit for the reduced prices so customers will act now and you’ll get the cash you need.
Another form of a sale is to offer discounts for immediate payment to get the cash in your hand sooner.
Whatever you decide to do, make sure you get the word out via email, social media or the old fashioned way of calling customers directly to tell them about your sale or promotion.
Borrow from Alternative Lenders
Ideally, you would have established access to credit before starting your business so that you have a plan to tide you over when cash flow is low. If you wait until your business is having difficulty, it may be hard to find a loan, particularly from traditional banks which have long application processes, and turn down around 80% of all applications.
Alternative lenders often provide a far easier application process and faster decisions. It is also easier to secure smaller loans than with an alternative lender than traditional banks, who generally prefer larger size loans. BFS Capital offers loans from $4,000 to $1 million.
But you do need to consider that the cost of an alternative business loan is higher than a traditional loan as any business owner who cannot get a bank loan is considered high risk. However, if your business does need a loan to get through a rough patch, this may be the best option.
To increase cash flow over the long term, consider the following:
Raise Your Prices
A price increase for your most popular services or product offerings will certainly help boost cash flow. But unlike a sale, it’s a decision that takes some examination. First, you need to see when you last raised prices and review how much costs have increased since that time. Another way to raise prices is to reduce dependence on your low margin areas and focus more on higher margin products and services.
Check out what prices your competition is charging both locally and nationally. See if you can still be competitive with higher prices.
Of course, the biggest fear if you raise prices is that customers will go to a competitor. But if customers are happy with your products or services, they tend to stay if the increase is not substantial. That small increase could make a major difference to your cash flow and net profit.
Don’t Buy, Lease
Leasing generally costs more than buying in the long run, but you won’t be tying up as much cash at the onset. Meanwhile, a lease for a preset term allows you to budget more effectively. You should also consider the tax benefits of lease payments, which can be claimed as a business expense.