If you own a small business or manage a nonprofit, you know managing day-to-day expenses can be tricky, especially when payments or donations are inconsistent. If you have experienced temporary cash flow problems here and there, you are not alone, and it does not mean your business is in trouble. 

Cash flow problems can sneak up on a business, even in a booming economy. If a business is earning a profit, many business owners simply assume that cash flow is taken care of. But even if profit is high, cash flow can be challenging. 

Boost your chances of keeping enough cash on hand to cover all of your assets with the following tips:

Forecast your Cash Flow

Gather your monthly expenses to create a cash flow forecast for your business. Typically, this means predicting what your finances should look like during the next six to 12 months. By doing so, you can uncover high and low cycles as well as better understand your financial situation and be prepared for all circumstances.

Set Clear Payment Terms

Clients won’t pay you within your timeline if you don’t set clear expectations of the time frame in which you desire to be paid. If you expect payment within two weeks or 30 days, make that a part of your work contract. To encourage quick payment, you might even consider offering a discount for cash on delivery or payment within 10 days. Most importantly, have a definitive plan of action for late-paying and non-paying customers.

Ask If You Can Get a Discount of Your Own

If you can offer your customers a discount for prompt payment, why not see if your vendors will do the same for you? Don’t be afraid to ask your vendors if there is any possibility of receiving even a 5% discount on your invoice. Even that small amount could make a significant difference in how much cash you’re having to part with each month. It also can help offset the discounts you are offering your customers.

Put Any Non-Essential Spending on Hold

When you’re in a tight spot, take a close look at your expenses. Is there anything you can put on hold right now, or cut out altogether? For example, when sales are down, reducing your weekly or monthly inventory order might be an option. Dropping any unnecessary subscription services could be another. Just like in your personal budget, the more costs you trim, the more money you’re putting back into your cash flow.

Diligent Bookkeeping

We understand that the last thing that a small business owner needs is another thing on their to-do list, but keeping your books organized is essential to successful operations. While it’s incredibly easy to misplace bills, forget to send out an invoice, and not keep up with payroll, procrastinating on bookkeeping duties can be detrimental to the success of your business. If you’re struggling to manage your company’s books, either outsource this task or hire someone internally.

Make Adjustments

Prepare for highs and lows in cash flow. Save profits from your high-sales times and have a plan in place to negotiate with vendors during low-sales times. You will need to be as flexible as possible with regard to expenses. While flexibility with vendors is not always an option, your business banker or treasury management team may be able to help you obtain fast access to working capital if you get in a pinch.

Once you’ve gotten through a particularly tight crunch, the next step is to assess why it happened and create a plan for avoiding another one in the future. Your business banker and treasury management team are great resources who can provide solutions, advice, and encouragement. Don’t hesitate to reach out!

Written by: Lindsay Meyer, CTP

Lindsay is a Treasury Management Representative at Investors Community Bank, assisting clients with their cash management needs. She has a rich history in customer service and business banking and is committed to understanding customers’ financial needs and recommending the best products and services.

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