Cash flow. These are probably the two most powerful (and terrifying) words to a business owner. A study by U.S. reported that 82% of failed companies were due to bad cash management. This figure may be even higher here in the San Francisco Bay Area due to the higher costs related to running a business in this area.
The accounting software company QuickBooks recently had an online chat session that offered tips and advice on how to improve cash flow issues. Here are some of the key questions and answers that were mentioned:
“Q1: What are some of the causes for cash flow issues in smallbiz?”
Buying too much equipment, supplies, and inventory
Slow payment from customers (i.e., bad Accounts Receivables management)
Owner draws that are too large relative to company profits
Poor tax management
Poor payment terms with both vendors and customers
Over-optimist sales growth forecasts
No cash flow budgeting
Poor profit margins
“Q2: What are some basic steps to get your #smallbiz organized to guard against cash flow issues?”
“Keeping your small business organized is key when guarding against cash flow issues as disorganized books can quickly get out of hand. To help with organization, you can hire an accounting pro, budget, review A/R consistently and regularly, invoice in a timely manner, get rid of stale inventory, work with a tax professional to submit taxes throughout the year, review trends and prepare accordingly,[and] analyze expenses to ensure you aren’t paying for services that are no longer used….”
Be careful with payroll management and accounts
Re-examine pricing structure
Set payment terms to encourage early payments
Establish credit with lenders before it’s needed
Don’t mix personal expenses with business expenses
Update your financial books at least once a week
“Q3: What are some things you can do to increase your revenue in your #smallbiz?”
“There are numerous ways small businesses can increase revenue, including raising prices, increasing the number of customers, and increasing the average transaction.”
Raise prices
Clear old inventory through sales
Invest in more marketing to your target audience
Add more high-margin products and services
“Q4: What are some things you can do to decrease your expenses in your #smallbiz?”
“Another way to increase revenue is to decrease expenses. Small businesses should review everything from early payment discounts when paying bills, to negotiable interest rates and service provider fees.”
Analyze each expense category carefully
Review Internet and telecom expenses
Establish better employee expense reporting and reimbursement policies