Posts Tagged ‘small business’
Are you the type of person that has a tendency to procrastinate because you secretly love the thrill of getting things done on time? If so, you have probably experienced the stress and urgency of trying to establish some cash flow in your small business.
Cash flow is truly the lifeblood of your small business. Without it, your business will drown even if your income statements say you’re making a profit. Cash flow is defined as the relationship between revenue and expenses over a given period of time. Investorwords.com actually calls it “a measure of a company’s financial health.” Revenue is the money flowing into your business through sales of services or products, and expenses can be just about anything you spend money on to run your business.
Your primary objective as a small business owner is to make enough revenue (consistently) so that the revenue made is greater than expenses paid. This way, you begin to build up an overflow of money coming into your business. You need this overflow so you can have the ability to do anything from taking advantage of new opportunities to covering unexpected emergencies.
In order to avoid a cash flow crisis, use the tips below to build up your cash overflow and enjoy your growing business.
1. Always receive payment upon delivery
Many small businesses allow customers to enjoy first and pay later. The fact is, if you want to see your cash flow remain consistent and steady, you can’t afford to do this. Credit is for banks and large corporations, not your small business. If it’s realistic, always ask for a one-time payment in advance of your services. If your product or service is delivered over a period of time, request payment in advance of each delivery. You should offer some sort of discount for paying more up front rather than over a period of time.
2. Pay every bill on time
Nothing but common sense here, you’ll save money by avoiding late payment charges and you can often take advantage of payment discounts for early payments.
3. Have a product that makes you money more than once
By creating something that you can sell multiple copies of (like an e-book) can be extremely beneficial and cost effective. Having a business website where you can sell your products is also extremely beneficial and can save you a lot of time, money, and effort by reducing many costs.
In the event your small business starts experiencing a lull in cash flow, you need to act fast. Even if you’re still profitable on paper, that doesn’t necessarily mean you have enough in the bank to pay the bills. Problems can arise especially if your company is successful, but your customers start slowing down their payments.
David Worrell of Allbusiness.com has a specialty in finance and managing small businesses. He wrote a great article on a few tips that can help you survive a cash flow crisis. Below are a few pieces of advice from David that may help to save your company from going under.
Know the numbers.
“In good times and bad, keep an eye on key cash flow numbers. I’m not talking just about a cash flow statement each month, but also about key ratios or metrics in your business. If you start this habit in good times, you’ll have forewarning when cash turns against you,” David says.
His advice is extremely useful in this circumstance because new business owners have their focus spread out. It’s important to keep a finger on the pulse of your cash flow because you will be able to better sense an incoming crisis and have more opportunities to prevent it from happening.
Cut your own pay. Now.
“Besides taking pressure off of cash, this will motivate you to fix the problem. If you hide behind a salary – and keep building debt, or laying off staff to pay yourself – the problem will grow worse until it is out of control. Cutting your own pay also demonstrates leadership to your team,” David says.
This fact is extremely important to running and entrepreneurial business. As a leader, you need to demonstrate how important it is to work together with your team members. If that means your employees are paid and you’re not in times of crisis, so be it. They will be more motivated to stick with you and have a deeper connection with the business. Employees that feel as though they are a part of the company – rather than just employed by it, can help take a company to a much higher level.
You can’t start anything and expect it to succeed if you don’t have a plan. After developing, nurturing and convincing yourself and all of your confidantes that your new venture proposal is an absolutely fantastic idea, you need to write a business plan.
There are many different views on how long this process can take, some say a few weeks and some say six months. It truly all depends on the kinds of resources you have available like time, money to conduct an effective amount of research, and the people you need to work with in order to create the best business plan ever.
Here are a few tips based on some advice from Tim Berry, founder of Palo Alto Software, about a few factors that make an effective business plan.
It must match the business purpose
Your small business should have an ultimate end goal in mind, whether the plan is to exit to get investment, create a self-sustaining charity, or whatever your goal for your business may be. Your business plan should be framed by your business purpose – where your business is going and what you want to leave behind.
Lesson 1: Your business plan must outline your company objective.
It must be realistic
Your business plan really won’t get you anywhere if your projections are off the charts. You may have a fantastic business plan with pretty charts and flawless formatting, but if you are presenting an idea for a product that simply cannot be produced, it’s not going to catch on.
Lesson 2: Step back and assess the feasibility of your plan.
It must be specific
According to Tim Berry, “every business plan ought to include tasks, deadlines, dates, forecasts, budgets, and metrics. It’s measurable.” This idea is so true and it’s amazing how many business plans leave out the crucial information. You can make your company sound great but if you don’t have the numbers backing up your projections, you might as well start over.
Lesson 3: Outline your business’s every detail
You have to give yourself the ability to track your results and see if you are in line with your projections and goals. You will most likely encounter set backs and a few failures here and there but if you have a solid business plan and structure in place, it won’t be difficult to reassess your business situation and get back in line.