Whether you’re running a small business or a Fortune 500 company, cash flow problems have the potential to run your enterprise into the ground. Even a profitable business suffers if it’s struggling to keep a positive net cash flow. If customers are slow to pay, your expenses are apt to add up quickly and keep you from running your daily routine properly.
Let’s say, for instance, that you own a landscaping business and you use a company credit card for daily operations, like paying for gas to fuel your equipment. Should you need cash to pay your credit card bill but are still waiting on customers’ late payments, you won’t be able to operate your mowers and serve other customers for very long.
While cash flow problems come in many forms – like the accounts receivable issue mentioned above – there are three universal fixes to ensure that your small business overcomes its cash-related setbacks.
- Make sure your accounting records are up to date.
You know the cigar box method of small business accounting: Money in minus money out equals money left. It’s simple, and it makes sense. But, it’s a poor indicator of your risk of running out of cash.
Sound and accurate record keeping gives you the ability to make smarter decisions for the future, especially when it comes to cash flow planning. A smart business owner takes advantage of this information to plot his or her next move. And if you’re already battling cash flow problems, it’s the key to solving your issues. Make sure your information is up to date, because there is nothing more counterproductive than looking at last year’s statements to fix this year’s problems. - Pay your taxes on time.
Failing to pay your payroll and sales taxes on time is a mistake that has painful consequences. This money is not a means of short-term cash flow. Federal, state and local governments all view these taxes as their money, and they’ll be coming to collect it.
Avoid using these government remittances as a cash flow source at all costs – If you’re using cash from unpaid taxes, there’s little chance of recovery after just a few months. When the government does collect, it goes after the cash in your pockets (bank accounts). And, if you don’t have that money on hand, it will be tirelessly pursued. - Slash the expenses tied to your ego.
Many small businesses carry expenses that stem from an owner’s ego. The cash used to promote the image of the business and the owner is spent for “pride and joy.” They aren’t smart business expenses. These must be sacrificed for the sake of your cash flow and the health of your business.
Display ads, sponsorships, two-for-one specials, happy hours, liberal refund policies – the list goes on and on. They have some basis, or you wouldn’t have talked yourself into them in the first place. But, do they really bring in more customers? And do these extra customers spend more money? Your marketing dollars need to be spent wisely.
Especially if your business is running into cash flow problems, your ego-driven expenses have to go.
If you’ve brought your records up to date, ensured timely payment of your taxes and cut your “egotistical” expenses, your small business is sure to be in a much better place. While there are more complex issues to work through, these three tips are easy ways to help solidify your small business’s finances.