Here are seven ideas for improving your small business's cash flow:
- Bill promptly. Ever find yourself so busy building your business and making deadlines that you don't get around to billing on a regular basis? You're not alone. Business owners sometimes neglect to send out invoices until bills or monthly employer tax payments are due. If you don't already have a system in place, start (or assign an employee to start) billing for projects on a regular basis. When taking on longer-term projects or clients, negotiate in advance for regular payments instead of allowing the amount due to build up until completion of a contract.
- Create incentives for faster payment to you. Small businesses can sometimes significantly cut the time spent waiting for payment by offering a discount for quick payment. Consider offering discounts of 1% or 2% for payment within 10 days. If a client is planning to pay the bill within 30 days anyway, they are likely to fire out a check right away to get that little extra discount. Good for their bottom line; good for your company’s cash flow.
- Avoid slow pay/no pay customers from the start. The best way to avoid cash-flow problems because of customers or businesses not paying you is to weed out those slow pays/no pays out before they become clients. If someone is about to become a significant client or customer, do your homework. Ask for, and check out, credit references. Call other businesses that have had a relationship with the client. You might even pay for a credit check from an organization such as Experian or Dun & Bradstreet.
- Use barter instead of cash. You could reduce the strain on your immediate cash if you need goods or services from someone and can barter goods or services of your own in return. Note: This is not a way of cutting any tax bills: you're still required to report the value of the barter transaction on your tax return.
- Trim your inventory. Money spent on inventory is money that isn't producing any interest or savings for you. Sometimes reducing inventory can be pretty simple. A restaurateur, for example, cut back on the size of his/her wine cellar. This allows the restaurateur to focus on the best wines from a few regions, rather than trying to be all things to all diners. If the customer still has good choices, it may not even matter that there are fewer choices than ever before.
- Consider consolidating your loans. It's often tough for small businesses to borrow money. But you may be surprised at the variety of ways that entrepreneurs do borrow. Even with only one employee, you might have loans related to different areas of your business: an equipment loan, a car loan, a business line of credit or a business credit card. Review the rates and terms on each loan. You may be able to consolidate two or more loans into a lower-interest account and improve your cash flow. Although this step should be taken with care, as it extends your company’s debt, you might also consider taking on a longer-term loan in exchange for lower monthly payments.
- Give gifts, not meals. This is a little thing, but it's definitely worth keeping in mind if you want to tell a client "thank you." Take a client to lunch and you can deduct only half the cost of the meal. Buy a client a gift or gift certificate for up to $25 and you can write off the entire cost, further cutting your tax bill and improving your overall cash flow. Best practice is to contact you tax advisor for more information.