By Vanessa Freund-Marte
One of the main reasons small businesses fail is the lack of a cash cushion. Even when the business is profitable, without a positive cash flow, it will not survive.
Yet despite its importance, cash flow is relatively simple to monitor and manage. It comes down to making certain that more cash enters your business than exits your bank account.
The first step toward ensuring a healthy cash flow is to convert sales into real money as quickly as possible. That boosts your bottom line, and provides a safeguard against unpleasant surprises such as slow or non-paying customers, unexpected expenses and a slow economy.
One way to shift cash your way is to ask for all or a portion of the payment up front. Asking for a deposit before you begin work protects both you and your customer. If you establish the policy fairly and properly, it shouldn’t alienate good customers.
Accepting credit card payments also can help speed cash into your account, though it does require a small transaction fee. If you already have a merchant credit card account, encourage customers to use this option more often. Also consider new technology such as Square, which allows credit card transactions to be made using smart phones, regardless of where you do business. This technology expedites the flow of cash into your bank account, sometimes as quickly as the next business morning, and adds a welcome measure of convenience for your customers.
For businesses that are seasonal, one way to mitigate the changes in cash flows is to obtain a line of credit. A line of credit can finance your operating expenses during the slow periods until the profitable season comes back.
A healthy cash flow also requires close attention to your receivables — the money that customers owe to you for products or services you’ve delivered. Create a detailed “aging schedule” of what you are owed, by whom, and for how long. Call overdue accounts, focusing first on the largest amounts due. Don’t rely on email unless you feel certain you’ll receive a response.
A common mistake is to spend too much cash when trying to grow your business. Startups need to be careful about spending lot of cash to prove if the business model works. Finding and taking advantage of free resources and lower cost marketing is a good way to grow your business without spending too much money.
Vanessa Freund-Marte is a SCORE Volunteer Counselor. To learn more about cash flow and other critical small business financial issues, contact www.ashevillescore.org. Asheville SCORE is a nonprofit organization providing free, confidential business mentoring and training workshops to small business owners.
Special to the Citizen-Times