Small Business Resolutions To Boost Your Cash Flow In 2021
Running a business in what we assumed would be a post-COVID world this year has turned out to be a continuous challenge, taking on various strains from last year’s pandemic. A common denominator for many small business owners is steady cash flow throughout the year.
Staying in the green has always been a priority for small business owners. Now, more than ever, you need to take control and manage your finances to ensure long-term growth and sustainability.
To make the most of 2021 and increase your cash flow and profits, here are six ways you can do this:
1. Introduce subscription sales
Do you sell a service or product people buy and use several times a year? You might be able to sell it as a monthly subscription. For example, rather than charging customers each time they need a pool or garden service, you could put them on a monthly contract. They benefit from predictable costs, and you get cash flow each month while securing their business for the year.
2. Consider invoice factoring
Invoice factoring supports the cash flow of smaller businesses that struggle to offer their customers credit terms of 30 days and more. It’s a form of credit where a third-party financier pays you an advance based on an agreed percentage of each invoice you issue. As you receive the money, you pay back the advance and a modest fee.
If you are not number savvy, some technologies can help you gain insight into exactly what is coming in and what is leaving your business account. This will help identify where you can streamline operations and save money. Conduct a break-even analysis – a calculation of the sales targets you would need to meet to cover fixed and variable costs – and identify areas where you can cut costs.
3. Speed up delivery
If you get paid cash-on-delivery, look at ways to speed up production and delivery. For example, a new courier company might be able to ship your goods faster than your existing one. This might also cut your expenses if you find that the new supplier has better rates.
You should also look at getting rid of unwanted office equipment that keeps you from getting things done quicker. Rather than allowing old inventory or obsolete machines, PCs, and office equipment to clutter your premises while depreciating in value, sell them. Remember that selling inventory below cost may produce a tax loss, in addition to giving you a cash injection. Selling old equipment may produce a capital gain, especially if it’s fully depreciated.
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4. Evaluate supplier and service provider contracts
If you’re in a long-term partnership with a vendor, take the opportunity to re-negotiate payment terms or discounts when contracts come up for renewal. Also, go through the contract to be sure you’re not paying for any services or extras you don’t need.
You should also review your payment terms. If your credit terms are 60 days, rather keep the money in an interest-bearing account than pay early. Don’t be late with payments either. This harms your relationship with vendors to the extent they will no longer give you credit. You may also be asked to pay interest.
5. Cut costs
Always look for opportunities to reduce wastage and inefficiency, whether that means moving out of your plush offices or cutting back on printing costs. Today, almost everything can be done remotely and online. Using cloud-based accounting solutions, for example, can help you and your team get work done no matter where you’re based.
6. Reward prompt payment, chase outstanding debts
You should have a credit control process that focuses on ensuring your debtors pay on time. Send invoices to customers promptly, and chase overdue bills. Be clear about your payment terms. Incentivise clients to pay on time with discounts for early settlement and penalties for late payment.
Alongside this is taking control of the cash that comes in, more assertively. Many small businesses know the feeling of waiting for a corporate client to pay them after they’ve dedicated most of their team’s hours for the month and settled third-party supplier bills. Likewise, someone making custom furniture is spending time and materials on each order. As a small business, it’s reasonable to ask for a 50% deposit upfront for big jobs that could hurt your cash flow.
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