Having the necessary cash on hand for day-to-day operations is key to the success of any small business. It can be a fine balance to keep enough working capital in between the time you pay suppliers and the time you are paid by your customers. Here are a few ways to make sure your business has the cash flow it needs to run smoothly.
Managing your working capital starts with having an accurate picture of your cash flow requirements. It is important to take into account the typical market cycle, but also to budget in things like projections for growth or reductions in sales. There should also be a cushion added in for unforeseen events like the movements of competitors or the loss of a key business client. Knowing how much working capital you need is the first step to effective cash management.
More Efficient Billing
Cutting down the time it takes to collect money from your customers is one way to manage your cash flow better. Paper billing can be a very slow way to receive payments. There are plenty of systems on the market today that make it easier for clients to pay their bills. In addition to established web-based automatic billing services, there are also alternative systems popping up that allow customers to pay online. There are fees associated with these services of course, but the benefit of getting your money faster may outweigh the cost of the fees.
There will almost certainly be times when those unforeseen events will creep up and knock the wind out of your carefully crafted working capital forecasts. Have a backup plan for meeting your financial obligations in those situations. There are companies, for example, that will make microloans to small businesses for the purpose of paying bills on time when there is no cash on hand. These microloans cost money in interest and fees of course, but paying them may be better than shelling out cash for bounced checks or better than taking the hit to your credit for late payments.