Lack of proper cash flow is one of the leading causes that many small businesses do not make it past their first year. In fact, a bank study showed that 82 percent of companies that fail do so because of cash flow problems.
Small businesses (fewer than 500 employees) make up 99.7 percent of all business in the U.S., which means Accounts Receivable (AR) is a big problem for a lot of people. Getting paid (especially on time) is not known to be the easiest part of owning a business, but here are a few things to consider that can help keep your accounts in check. (No pun intended.)
Actively Pursue Past-Due Receivables
Keeping tabs on overdue payments owed to you can be one of the smallest, least expensive things you can do to increase cash flow with the most impact. It’s vital to be as aggressive as necessary to collect payments from clients to avoid bad-debt in the long-term.
Implementing late-payment fees or demanding upfront costs from new clients can also prevent too many outstanding invoices. Once you develop a form of trust with payments, you can allow for more flexibility in the long run. You might offer a discount or other incentives for early payments as well.
Short-Term Business Loan
If your business is growing too rapidly, it may be challenging to keep up with the costs of growth at the same pace that it is happening. As long as you have proof of work and revenue, a short-term business loan could be a good option to help offset the costs of excessive growth until you can receive payment.
High Overhead Costs
Overlooking the costs of resources such as employee overhead and communication tools can be one of the leading causes of slow cash flow. It’s important to periodically re-evaluate your overhead costs to make sure you’re not overspending in areas that aren’t directly related to increasing revenue.
Save. Save. Then Save Some More.
Many business owners think of the money owed to them as cash on hand, but in reality, only cash is cash on hand. Relying on income that can’t yet be liquidated can be a grave mistake for a small business owner. A savings account for your business is just as necessary as the one you keep personally. Always make sure you have something to fall back when things fall through. That will keep your cash flow at a healthier rate than operating from zero at all times.
Debt Collection
If your efforts to collect debts owed to you go unrewarded, you may want to increase cash flow by investing in a collection agency or a debt buyer. The route you take may depend on the size and age of the debt owed, how much of the profit you’re willing to forfeit, and whether the light in which the representation of your company is negotiable.
If you go with a collection agency, the debt remains yours, and the agency collects the debt on your behalf. If you consult with a debt buyer, then the debt is no longer yours, but the losses you cut may be significantly greater than those with a collection agency.
Don’t be another statistic in the graveyard of failed small businesses. Taking action and making sacrifices for cash flow now (just like you did in the beginning) could be the very difference between a few years and a few decades for your business.
Need help with your cash flow? Contact us to get started.