Cash Flow: Tips and Tricks for Entrepreneurs
A negative cash flow can kill your business. Cash flow is the lifeblood to keeping your business afloat. To take control of your finances, it is important to understand how cash flows in and out of your company, and ensure that you are bringing in more cash than you are sending out.
Here are some tips and tools to help you prepare for successful cash flow management:
Control Expenses:
Monitor your company’s cash outflows so you can pinpoint warning signs early, and spot opportunities to give yourself some cash flow elbow room. You can incentivize your staff by challenging them to find ways to reduce expenses, and rewarding them if they’re successful. Beyond cutting expenses, you’ll also foster a collaborative culture and encourage creative thinking.
Understand Banking & Accounting Options:
It’s crucial to have a good handle on financial transactions, even though the process can be tedious and time- consuming. There are several tools that can cut stress and time out of the process:
- Online Banking:
Online banking is a tool that is available and open for business anywhere and anytime. Many financial institutions have special features available in their online banking portals specifically for business owners, and include online features like e-transfers – a fast and secure way to transfer money to your clients and vendors without exchanging bank account numbers. You can also pay your service taxes (HST, PST, GST), payroll deduction taxes, or corporate taxes through online banking. You can authorize select staff to perform assigned activities on the account and approve, reject, and keep track of transactions with ease. - Cash Deposit Services:
This will allow you to put any cash funds into your account through ATM machines at anytime, any day, 24/7 — with no need to wait for a bank branch to open. Depending on your business, you may handle lots of cash, and for safety and ease of tracking cash flow, you will want to deposit these funds as soon as possible. - Automated Fund Transfers:
These allow you to switch from cheques and mailed invoices to electronic processing and management of payables and receivables. You can also set up recurring payments or bills, or one-off transactions for a future date. - Online Accounting Software:
There are plenty of options for online accounting software, all of which give you access to how your business is doing anywhere, at anytime. You can link your preferred online accounting software to your online bank account and record receipts at the time of purchase. This eliminates the risk of losing receipts and having to input them at the end of the week, month, or year.
Optimize Inventory:
Holding on to every product or service you offer without considering the real value each brings to your business can be harmful. Identify which products and services are actually contributing to your overall cash flow, and get rid of any that are exhausting your time, your energy, and your resources.
Get Paid On Time:
It is important to remove any barriers that prevent you from generating the cash you need to run your business. There are a number of ways to stay on top of clients paying on time and keeping your cash flowing, including:
- Provide Options:
In your initial meetings, ask the client what works best for them in terms of timing of invoices, credit terms and payment type. Instead of just accepting cash and cheques, consider accepting credit and debit cards, online payments, direct deposits and email transfers. PayPal, Square, QuickBooks and FreshBooks are just a few companies which allow you to send invoices that clients can pay easily online. - Get It In Writing:
State your fees and payment terms in writing to avoid misunderstandings about payment expectations. Your written contract should include:
— a Scope of Work Clause which is a very clear and specific description of exactly what you are going to provide to the client
— a Cancellation Clause which will tell your client if and when they can cancel and what, if anything, they will still owe you after cancellation. - Invoice & Collect Quickly:
The sooner you invoice your customer, the sooner you can expect to be paid. Don’t be afraid to offer incentives for early payments received, and charge late fees for delinquent payments. If you have customers that are weighing you down and are hard to deal with, don’t shy away from terminating services. - Make Friends:
Introduce yourself to whoever pays the bills. If they know and like you, they’ll respond when you call. - Confirm Your Collections Procedure:
Even with the most rock-solid contract and convenient invoicing systems, you’ll still occasionally have to deal with a client who doesn’t pay on time. By insisting on a signed agreement a collections policy that protects your ability to get paid, you signal to the world that you take your business seriously. When you take yourself seriously, your clients take you seriously — and serious people get paid.
When creating your collections system, ask yourself the following questions:
— How often will you remind your client to pay invoices? (weekly/monthly?)
— How often will you send reminders if they go ignored?
— Will you indicate adding interest to the outstanding amount after a certain number of days, to act as a deterrent to long delays in payment?
— What escalation methods will you use if the client still doesn’t pay? Will you consider a collections agency, retaining a business lawyer, or taking a client to small claims court?
— How important is the client to you? Using a collections agency or starting a court action often leads to a permanent breakdown in the relationship.
Create a System with Financial Projections:
Think of financial projections as a performance review that organizes and presents data in a way that offers clarity about where your business is headed, and the different issues you may encounter. When you make projections about expected cash inflows and outflows, it can help you to anticipate the ups and downs of sales and expenses, so you can react appropriately. Financial projections can also help you to establish a long-term plan so you can work effectively towards goals that may seem a long way down the road. Feel free to use the templates provided to help you get started with a cash flow plan for financial projections
Weekly Cash Flow Plan
Monthly Cash Flow Plan
