Start-ups and growing businesses face a number of hurdles in keeping the cash flowing. Most new or growing small businesses do not have vast reserves of cash to fall back on during the lean times. They must instead rely on banks or other forms of loans to keep the cash flow moving. I recently read a study that reported the approval rate for business loans is approximately 10%. That is certainly on the high side for start-ups.
My firm is not only in the business of providing working capital to growing businesses, but we also like to try to help the small business owner equip themselves with information about trends and topics that interest the entrepreneur. Knowledge is power… and cash is king!
Here are some valuable tips that merit consideration for running your business from a financially savvy perspective:
1. Consider ways to increase your cash flow and improve your credit worthiness
Work on keeping your cash flow in good shape. Better cash flow = a better track record as far as your creditworthiness. The main idea here is that you stay on top of your cash flow; if you keep yourself educated about your cash flow you are better equipped to handle a surprise. Simple steps like this can help you manage your cash flow and keep you more flexible.
2. Work with your vendors to see if they offer prepayment discounts.
This simple idea can save you a lot on your bottom line and can also move you toward a position of good creditworthiness. Those vendors can offer a good recommendation on your payment record.
3. Watch your overhead and cut costs where you can.
Do you really need an on-site bookkeeper? With the current technological advances, there are many tasks at your office that you may well be able to outsource. Whether it is telecommunicating or just availing yourself of the services of subcontractors, you will be able to decrease your overhead by utilizing subcontractors for tasks that don’t require full time staff, and that will result in an improved bottom line. You will realize savings because 1099 subcontractors are responsible for their own tax liabilities. You also will not be paying benefits such as vacation, sick time, insurance, etc. and that is a great cost savings.
4. Drive your accounts receivable
If you provide goods or services you need to ensure that you are being paid for those. If you don’t take your invoicing / collections seriously then your customers are not likely to take their payments seriously. There are a number of small business owners that are great at providing the goods and/or services that they are passionate about, but fall short when it comes to the back office tasks of collecting for their invoices. Often times it just requires a simple phone call to bring the errant payment to light. Past due follow up doesn’t have to be a painful task, after all you are simply requesting payment for what you have provided… that is perfectly reasonable. If the business owner approaches it from the standpoint that you need to ensure 1) your customer received your invoice and hasn’t mislaid it and 2) that they didn’t have a problem with what you provided. That is often enough to get the customer to follow up with payment.
I hope that you can implement these simple steps and move your way to business success and growth. If you have some additional tips that you would like to share, please feel free to comment.