One of the leading causes of
business failure, particularly among small businesses, is poor cash flow
planning. It is imperative that a
business have sufficient cash on hand to pay bills, meet emergencies and to
invest back into the business to ensure growth.
Knowing that you will have lean months when sales are slow is an
important aspect of planning in terms of putting money aside, but it isn’t the
only thing you can do. You can also:
1. Aggressively
collect accounts receivable. If you have a customer who has not paid on
time, you need to follow up and secure payment. The longer you wait, the more difficult it
will be to collect. In fact, studies
have shown that after 90 days, the chances of collecting an account drops to
72%, down from 94% after 30 days.
2. Periodically
review your pricing. Ask yourself if you are charging too little
or too much. Research your competitors. Do you offer more value? A customer will pay any price for a product/service
as long as they are convinced that they are receiving value.
3. Establish
a line of credit. Approach your bank and see if you can
establish a line of credit to be used during times of emergency. In the long run, a line of credit with a bank
is a lot cheaper than credit cards should you find yourself in a cash crunch.
4. Increase
sales. Sure, it’s always easier said than done, but it can be
done.
5. Open
an interest bearing account and deposit daily. Sweep accounts
and interest bearing checking accounts may not produce a high yield, but 2 or 3
percent interest is better than nothing.
6. Renegotiate
your lease. Most leases come up for renewal on an annual
basis. Approach your landlord with the
idea of temporarily lowering rent payments during months when business is
slow. If vacancies are high in your
area, your landlord may prefer a reduced rent payment to no rent payment.
7. Hire
more part-timers. If you need
support staff, consider hiring part-timers.
Unlike full-timers, you are not required to pay benefits, and they are
generally more flexible in their work schedule hours. Additionally, if you need to lay off staff in
slow months, it is a lot easier to lay off a part-timer in comparison to a
full-timer with benefits.
8. Don’t
overpay on quarterly taxes. If you
think your income will drop this year, do not pay taxes based on last year’s
numbers. Work with your accountant to
ensure you have an accurate estimate. If
you’ve already overpaid on your quarterlies, ask for a quick refund (IRS Forms
4466 and 1138).
9. Read
the fine print in your equipment leasing contracts. Get an option
to cancel written into your equipment leases that allow for cancellation due to
closure. Don’t get suckered into
contracts with an evergreen clause.
These are clauses that allow a contract to continue unless you give 30
day notice. These are difficult to
cancel and the expiration date is hard to track.
10. Brainstorm
with staff. Your staff may have
great suggestions for cutting additional expenses. At your next staff meeting, ask for their
input and ideas.
