So what do 90% of business failures possess in common?
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Lack of cash.
Cash can be king. According to Dun and Bradstreet, 90% of business failures happen because of poor cash flow. In today’s delicate economy, maintaining a strong positive income for your small business is more important than ever.
Cash Flow Basics for Small Business
Properly, duh, right? Any high school economics student can tell you positive cash flow is important to a small business. But understanding about cash flow and keeping an optimistic cash flow for your business are two different things. So what do you need to consider with regards to your business’ cash flow? Three elements affect cash flow:
– Accounts Receivable (cash flowing into your business)
— Accounts Payable (cash flowing from your business)
– Overhead Expenses (a subset of accounts payable)
In this article I give you three ways to raise the cash flow into your business.
3 Ways to Increase Cash Flow into Your Business
In case you accounts receivable records look good, your business cash flow should be good, right? Wrong. A positive accounts receivable column just helps your business if you can convert your own receivables to cash. Your company accounts receivable is a listing of bad debts to your company. But being due and having cash in hand are two different things. So how do you switch accounts receivable into cash faster for your small business?
1 . Bill Quickly and Accurately
Another “Duh! inch suggestion, but you might be surprised from how many small business owners are guilty of neglecting regular and prompt billing, observing it as another paperwork hassle that goes on the back burner. If your small business does not bill promptly, start now. Assign an employee to handle this task if necessary. When working on long-term projects, arrange to bill monthly for work-in-progress and ask for any deposit before you start the project. Also, be very careful and detailed inside your billing. Nothing strains a good business relationship like billing errors. Review your bills for errors and omissions prior to sending them out.
2 . Avoid Slow or No-Pay Clients
You might be amazed at the kinds of clients who are slow to pay, or totally delinquent. According to Dun and Bradstreet, the particular worst slow-pay offenders are big businesses, those with 500 employees or more. On average, these businesses take 62. seven days to pay up, more than 4 weeks previous normal 30-day terms. Here’s another shocker: the most common no-pay offenders are usually clients who owe $500 or even less. Apparently, these clients believe that this amount of cash is insignificant, and don’t feel guilty about not paying up.
Before you take on a new customer or extend credit to a client, do your homework. You can do a credit check on all new clients using an outside agency, or request credit references and do your own checking. Another option would be to call other businesses that do business with your client to learn whether the customer pays on time. If the potential client turns out to be the slow/no pay kind, don’t take them on. In trim economic times it may seem crazy not to accept all the business you can get, but clients who don’t pay up can seriously and negatively have an effect on your cash flow. Not only will you wait around endlessly to get paid for goods and services already delivered, but you will also spend a lot associated with internal resources tracking delinquent balances and chasing your cash. The best plan is: “Just say no! inch
3. Plan for Fast Cash
You can find two ways to get your clients to pay up sooner. First, you can negotiate short payment terms when you contract with a client. These days, many small businesses are asking for and getting “net 15? conditions. See which if your clients might be open to these terms. Second, if you’re not comfortable asking for “net 15? terms, you can offer clients a lower price for early payment. Offer an one to two percent discount for paying within 10 days. While you’ll be losing just a little cash to the discount, you’re overall cash balance will be a lot healthier.
These three simple strategies for cash flow management can be the difference between your small company operating in the black or getting one of the business in the 90% failing bracket.