If you ask ten small business owners what worry is keeping them up at night, at least four of them will say it’s cashflow problems. According to Quickbooks’ The State of Small Business Cash Flow report, 61% of small businesses struggle with cashflow, and over 30% of them struggle to pay their vendors, themselves, or their bills on time.
Even businesses that have high revenue on paper often struggle with cashflow problems as they wait for other businesses to pay their invoices. What can seem initially like growing pains for a new business can soon become a never-ending cycle of waiting on a client to pay an invoice so they can pay their vendors.
So, are cashflow problems just something all businesses have to endure? The good news is that no, you don’t have to live with a constant dark cloud over you that is waiting to get paid. Read on to learn how to improve cashflow in your business.
How Can I Improve Cashflow? 5 Smart Ways
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Create a Budget (and Stick to It)
If you already live by your budget you can skip this tip, but if you don’t yet have a budget for your business, stick around. It can be tempting to ignore the need to budget when your business feels so much like a living, breathing thing, with money constantly coming and going. Certainly, it’s easiest to budget when you’re getting a set amount each month.
But, just as it’s possible for individuals to budget without a set income, it’s possible for businesses, too. Make sure you know how much you need for recurring bills, how much you need to put aside for taxes, and how much you need to put aside for future upgrades. Budgeting for the latter can help you avoid having to borrow or eat into your working capital when you need to buy new equipment.
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Offer Early Payment Discounts
Do you offer your clients net-30, 60, or even 90-day terms? If so, you likely already experience clients waiting until day 30 to pay their invoice. If you offer net-90, you’re waiting a full quarter to be paid – you need some serious working capital to be able to function well like that.
If you’re constantly waiting to be paid, consider offering clients 5-10% off their bill when they pay within the first 7 days. While some big companies have finance departments that rigorously stick to a payment schedule, many will suddenly find themselves motivated to pay you on time.
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Create a Micro-Offer or Upsell
If your products and services come with a higher price tag, consider introducing a micro-offer or small upsell which can be delivered immediately upon purchase. These micro-offers can help give your business a much-needed injection of revenue, can come at any time, and can even act as a paid lead magnet for future potential customers.
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Cut Your Spending
Most businesses keep expenses long after they stop using them because they never check in with their outgoings. If you’re like most business owners, you stay laser-focused on bringing in more sales and new business. While this is essential for your business, if you want to improve your cashflow you’ve got to plug any potential profit leaks. Take a look at what subscriptions you’re paying for, any insurance or support, and so on, and cut what you’re not using.
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Audit Your Customers
This is another way to improve cashflow that often makes business owners balk – audit my customers? But we need all our customers! Well, the truth is you can probably better serve a niche market and if you are already serving a niche market, there are probably a couple of customers you’re serving that cost you more in time and energy than they make you.
If you have customers that cause cashflow problems through not paying, requiring additional care or software you only use for them, consider if you’re really getting a good return for serving them.
If they’re difficult to please but pay on time and so you don’t want to lose them, make sure you’re charging them a premium for the additional time it takes to serve their needs.
The result of an audit of your customers usually means you can cut some of the clients you don’t like working with and can improve the service for the clients you love working with – thus being able to charge a premium for your specialist service.
How to Improve Cashflow: Final Thoughts
Cashflow problems often leave us struggling to get through each day, chasing clients for payments, or trying to stretch every pound as we wait for that next big invoice to come in. In most cases, you need to make some serious changes in your business to see these cashflow problems improve – getting paid by that one client with an outstanding invoice will only temporarily solve the problem.
Often, improving your cashflow requires you to take a hard look at your business finances and see where all your money is going so you can improve things without having to make extra sales. If your ethical business needs a helping hand to smooth cashflow problems and start seeing real financial success, we’re here to help.
