As a small business, staying financially afloat can be a tricky task for many. Looking to Australian stats, small businesses have the lowest survival rate (56 per cent), according to the Australian Bureau of Statistics, with experts blaming poor cash flow management as an overriding issue.
And while many businesses go through cash flow headaches at some stage, if money issues continuously rear their head, it may be a sign that cash flow is a weakness in your business that needs fixing.
Thankfully, there are a range of strategies businesses can adopt to get out of financial hardship and make positive, long-lasting changes to future finances too.
If you’re experiencing cash flow problems as a small business, there’s no need to let them weigh you down. Instead check you’re on top of these three common problems...
Unfortunately, there is such a thing as being too generous – especially when it involves your time and income. While you may be happy to give a degree of credit to clients – especially those with more prestige – giving such credit for too long can cause financial downfalls.
Leaving a client in control of when you’ll get paid leaves small businesses sweating and vulnerable to debt. This is because it has a domino effect when it comes to paying suppliers and staff. If invoices are overdue, businesses may not have enough capital to pay bills, leaving them to fish into their own funds to cover costs.
How to fix the problem
Having a strict payment plan in place from the get-go helps clients and customers understand exactly what is expected of them, and when. You may still like to include a degree of credit but it’s important to stick to your own guidelines to avoid getting taken for a ride. Another way to secure payment is to request an upfront deposit. This can be larger depending on the scale of the job and encourages clients to complete payment once the job is finished.
Ultimately, it’s important to remember that clients won’t feel a rapid sense of urgency to pay you if they haven’t got an invoice in front of them. So, be sure to prioritise sending invoices to avoid falling behind on payments.
Agreeing on payment plans with clients is crucial for consistent cash flow.
While growth within a small business is exciting and commendable, sometimes it sneaks up unexpectedly, leaving owners unsure how best to tackle such big changes. Without the right guidance, growth can cause costly damages to a business. For example, owners may hire more employees than are actually needed to satisfy growth demand, which may be more than you can afford. Alternatively, while selling more is great, your service and product quality may slip, in turn damaging your reputation and causing you to have multiple call backs that suck up time and money, meaning your business falls back rather than moves forward.
How to fix the problem
Leaving a comfort zone to meet demands can be a scary thing, but it’s something that must be done if small businesses want to increase their chance of survival and avoid being a negative statistic.
Thankfully, business plans are a great tool to help make this possible. This crucial document lets you lay out your objectives, time frames and the steps that must be taken in order to reach goals. It should also include a plan for expansion, which may include funding strategies, hiring of employees and increasing marketing. It’s a fantastic reference to cross check and ensure you’re on the right track to meet your planned out demands instead of drowning.
If you don’t feel comfortable drafting your own, there are expert advisers who can help create an achievable business plan for you and your company.
Creating a coherent and realistic business plan is vital to meet the demands of growth.
After busy days dealing with customers and planning big projects, keeping organised and up-to-date books is often the last thing on a small business operator’s mind. Being busy is understandable, but pushing records to the back of the pile can cause huge problems for cash flow.
Forgetting about invoices is just one example. Invoices are crucial to give you an understanding of who owes what and when. Without them, you simply won’t get paid, so make sure they don’t get left in a pile buried among other paperwork.
How to fix the problem
If you feel confident dealing with the bookkeeping of your business, make a real effort to put time aside to manage the various paperwork that comes in and out. This will prevent documents such as invoices being passed from person to person, allowing things to remain organised and recorded. However, if it’s a process you don’t have time for or don’t fully understand, it’s worth hiring an accountant to keep on top of finances. This person will be able to guide you through what is going on so that you understand your cash flow a lot better.
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