Posts Tagged ‘small business cash flow’

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Consumers are increasingly using mobile devices to buy

In mid 2015 Google announced that mobile-friendly websites will be rewarded with higher rankings on searches done using mobile devices. Ranking higher definitely means more exposure for your small business.

The latest consumer statistics show that Smartphones and emerging mobile devices e.g. Smartwatches are increasingly becoming more popular for purposes of searching the internet. Clearly, more mobile visitors are what entrepreneurs need in order to boost sales volumes. Accordingly, it’s well worth knowing just how to go about doing this…the infographic below will help you do exactly that.

How to Get More Sales From Your Mobile Visitors
Courtesy of: Quick Sprout

While it’s good to know that having a mobile-friendly website will help to enhance the success of your small business, it’s definitely worth appreciating the fact that you also need to work smart. You see, spending more of your time working doesn’t always mean you’ll be successful.

The key to being a successful person is not working more, but working less and working smarter. If you want to be successful, get more done, and work less, take some time to learn from these 7 practices of successful people.

How Successful People Work Less and Get More Done

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Research has proven that organic farming makes a better business proposition than conventional farming

Research has proven that organic farming makes a better business proposition than conventional farming

Organic agriculture can be defined as an approach to farming that’s reliant on ecosystem management rather than the use of external agricultural inputs.

You can therefore picture a farmer whose operations do not involve the use of synthetic fertilizers and pesticides, genetically-modified seeds and breeds, veterinary drugs, preservatives and additives. In place of these are management practices that are geared towards achieving long-term soil fertility and the prevention of crop and animal pests and diseases.   

According to FAO there are three main motivations for organic agriculture as follows:

  • Consumer or market-driven organic agriculture – whereby farmers target consumers who prefer organic produce
  • Service-driven organic agriculture – farmers are incentivized for implementing production techniques that result in environmental sustainability
  • Farmer-driven organic agriculture – the farmers are self-motivated to embrace sustainable production techniques since they consider conventional agriculture to be unsustainable

From a business perspective though, is it advisable to practice organic farming?

Research carried out by different institutions and stakeholders has indeed revealed that organic farming tops conventional farming. One of these studies, carried out by the Rodale Institute over a 30-year period, practically affirms as much. The findings of this study confirm that embracing organic farming does make more business sense as follows:

1. Organic farms rake in more profits

This study revealed that organic farms made an average net return of $558/acre/year as compared to $190/acre/year in conventional farms. The two major reasons why organic farms manage to earn three times as much as conventional farms include the higher prices paid for organic produce and the lower input costs incurred.

A 20-year study at the Swan Lake Research Farm in Minnesota, USA, also confirmed the immense profit potential of organic farming.

Generally, organically-farmed food attracts price premiums of up to 30%.

Organic produce is sold at far much better prices than conventionally-grown produce and is thus more profitable...

Organic produce is sold at far much better prices than conventionally-grown produce and is thus more profitable…

Further evidence of organic farming’s high earning potential has been witnessed in Uganda, Africa’s leading practitioner of organic agriculture. Earnings from organic exports in 2003/4 stood at US$3.7 million. These increased to US$6.2 million in 2004/5 and leapt to US$22.8 million in 2007/8.

It’s rather obvious therefore that organic farming is the way to go.

2. Organic farming yields equal or surpass yields from conventional and GM farming

The Rodale study revealed that following a three-year transition period, yields from organic farming equaled those from conventional farming. It also revealed that leguminous crops were capable of fixing sufficient quantities of nitrogen in the soil, and that they can in effect be used instead of synthetic fertilizers.

Because the soils are fertile, organically-grown crops yields are typically very impressive...

Because the soils are fertile, organically-grown crops yields are typically very impressive…

In this regard, organic soil enrichment has been shown to offer a better promise for farm efficiency and sustainability.

As a farmer, you would certainly want your soils to remain fertile and productive over the long-run.

3. Organic crops are comparatively more resilient

In this study, organic corn yields in years of drought were 31% higher than conventional corn yields. Interestingly, these organic yields also outdid those from genetically-modified drought-tolerant corn varieties, and whose yields only bettered the conventional corn yields by 6.7-13.3%.

Organic farming techniques will typically result in substantial yields even in harsh climates

Organic farming techniques will typically result in substantial yields even in harsh climates

Growing organic crops is therefore certain to ensure the sustainability of your farming business during drought years.

4. Organic farming methods are comparatively more efficient

The Rodale study revealed that compared to conventional systems, organic systems used 45% less energy. Production efficiency was 28% higher in the organic systems.

Organic farming systems are less energy-intensive and more production-efficient...they are also climate-friendly

Organic farming systems are less energy-intensive and more production-efficient…they are also climate-friendly

Yet another study at Cornell University showed that organic farming systems use 63% of the energy required by conventional farming systems. Additionally, less energy expenditure results in less greenhouse gas emissions. Organic farming is therefore climate-friendly.

An organic farming business will therefore incur less expense with regards to energy usage, thus translating into cost savings.

5. Organic agriculture progressively increases soil health

The study showed that while conventional farming maintained overall soil health, organic farming actually improved soil health.

Organic farming allows Mother Nature's agents to replenish soil's fertility...

Organic farming allows Mother Nature’s agents to replenish soil’s fertility…

Organic farming enhances soil fertility by improving moisture retention and by naturally facilitating microbial activity. As a result, plant nutrition is boosted.

It is thanks to organic practices such as inter-cropping, crop rotation, application of organic fertilizer, planting of cover crops, use of symbiotic associations and minimum tillage that soil productivity is progressively enhanced. These practices are also crucial in helping to control soil erosion.

Organic farming is therefore a superb way to ensure the continuity of your farming enterprise.

"You need to take your business' accounting issues very seriously!"

“You need to take your business’ accounting issues very seriously!”

For many small business owners, the sight or mention of anything to do with accounting is enough to instantly turn a smiling face into a contemplative one.

Is accounting one of the duller aspects of business ownership that you’d rather do without?

It is!?

I’m sorry, that won’t happen; can’t do, won’t do…perhaps in the next life.

Your small business just can’t do without accounting.

This is the only way to keep your records accurate and complete; there are just too many numbers to memorize.

Effective accounting will help you to make considerable tax savings.

Sound bookkeeping is the simplest way to assess and confirm your business’ cashflow, profitability and growth.

Additionally, why risk being yanked into a lawsuit for possible funds commingling?

 

Here are 11 accounting practices that will do a whole lot of good for your business:

1. Getting familiar with and using the three tools of measuring business financial health

Successful accounting is more or less pegged on understanding how the following financial documents work:

  1. The balance sheet – it’s used to tell the worth of a business
  2. The profit and loss statement – it’s used to confirm whether or not a business is profitable
  3. The cash flow statement – it’s used to anticipate a business’ future cash balances
A business' financial health is ordinarily confirmed by referring to three basic accounting documents...

Easily confirm your business’ financial health by maintaining accurate balance sheets, P&L statements and cash flow statements

With the help of these three documents you can make informed decisions about how best to use business credit and how best to commit funds to business operations. Understanding how these three financial documents work will also help you to make sense of other financial documents.

These three tools are indeed the basis of creating sound business plans. Many potential lenders scarcely have time for anything else; a quick glance at your financial statements is enough to make or break your attempts to secure funding.

Again, if you are considering the acquisition of a business, or to have yours acquired, it’s worth appreciating the fact that sound decision-making cannot be possible without a thorough evaluation of financial reports.

2. Hiring a reputable accountant and bookkeeper

You have three choices in selecting an accountant.

First, you can opt for an independent Certified Public Accountant (CPA) professional.

Second, you can consider hiring an accounting firm; the scope of services will be wider but the fees much higher.

Third, is hiring an EA i.e. Enrolled Agent. Your choice of EA must have passed an IRS-administered taxation test.

Reputable accountants and bookkeepers are typically well trained, experienced and competent

Reputable accountants and bookkeepers are typically well trained, experienced and competent

For lack of national certification standards like there are for accountants, using referrals is perhaps the best way to hire a competent bookkeeper.

There are different categories of bookkeepers. Basic ones handle tasks like receipts processing and bill payments. Full-service ones can make a summary of all your business’ bookkeeping activity which you then submit to your accountant to facilitate tax returns preparations.

NB: Accountants are well placed to recommend a good bookkeeper based on the quality of work submitted to them by various bookkeepers.

3. Identifying a good accounting software program  

Find and use accounting software that's appropriate for your business

Find and use accounting software that’s appropriate for your business

This is another consideration where your accountant’s advice will come in handy.

Of course it’s very advisable to know what different accounting software business owners in your industry niche use and how effective each is.

Nevertheless, it’s quite impossible to overlook off-the-shelf solutions like Sage 50 Accounting and QuickBooks. Ultimately, though, whatever you settle on must correspond to your business’ accounting requirements and budget.

4. Identifying a suitable accounting method 

You have two choices in as far as accounting methods are concerned:

a. Cash basis method – This is the simplest option. Basically, income is acknowledged upon receiving cash, while an expense is acknowledged after the bill is paid.

Your type of business will determine what accounting technique is most suitable

Your type of business will determine what accounting technique is most suitable

b. Accrual method – Here revenue is matched with expense without concern to when the cash may or may not be collected.

Simply put, if you on day X sell a product whose payment is due after 30 days, you will record that sale on day X – not 30 days afterwards when the cash is collected. Similarly, if your business incurs an expense on day X with payment due after 30 days, you will record the expense on day X – not 30 days afterwards when you make payment.

This is the method of accounting the IRS requires for businesses that deal with inventory and manufacturing.

5. Keeping business and personal accounts separate

Without exception, your personal and business records should be separately maintained. This is essentially done to ensure that only relevant records are used for the compilation of income tax.

6. Issues of tax liability

There are two issues that you and your accountant must sort out:

a. Income taxes – Sole proprietorship businesses report business activity on Schedule C of IRS form 1040. You, as a sole proprietor, are required to pay income tax on business income, as well as the social security tax levied on this income, and which is separately reported on the income tax return.

Evidently, considering that the social security tax is approximately 15% of net income, and that this is paid in addition to income tax, small business owners have no choice but to be hawkeyed about their financials.

This should be enough motivation to find a competent accountant capable of setting up estimated tax payments. These payments will help to make your final tax bills lighter as well as to avoid penalties for defaulting on tax payments.

You need an accountant who understands the intricacies of income and payroll taxes

You need an accountant who understands the intricacies of income and payroll taxes

b. Payroll taxes – If you have employees, you need to apply for the state and federal payroll numbers required for filing payroll tax returns. Your accountant will be better placed to handle this. The federal payroll number or Federal Employer Identification Number (FEIN) is obtained using form SS-4.

For every state, different local and state tax payments are required. Paying these taxes requires you to apply for a State Identification Number.

7. Consulting reputable sources of financial and technical assistance

Quite often pro-small business agencies and organizations provide financial and technical assistance to startup businesses. It’s worth finding an accountant who is quite conversant about some of these organizations. Examples include:

8. Implementing effective internal controls for your business operations

Internal controls” describes the objective required in the handling of funds, where money, be it cash, credit cards, or checks, is exchanged for goods and services.

The purpose of this objective is to ensure that your business will receive all the income due to it without losing any of it through wastage, carelessness, employees’ dishonesty, fraud, etc.

With effective internal controls in place you won't have to worry about losing business revenue

With effective internal controls in place you won’t have to worry about losing business revenue

Effective internal controls must therefore be initiated and your accountant should identify appropriate controls suitable for your business.

Some of the most common of these measures include damage control planning and inventory policies & controls. You also need appropriate controls for the procurement of goods and services, as well as controls to oversee the release of processed goods and services into the market.

Considering these requirements, it is clear that hiring an accountant who is conversant with your industry’s operations and procedures is well advised.

9. Prompt submission of quarterly returns

Quarterly returns must be promptly submitted to avoid penalties

Quarterly returns must be promptly submitted to avoid penalties

Basically, quarterly returns are payroll tax and sales tax returns. It is mandatory for small businesses to:

  • file quarterly payroll tax returns
  • send money withheld from employees’ checks to the federal government
  • send the employer’s share of social security taxes to the federal government
  • account for withheld state income taxes
  • account for state unemployment tax that employers pay to the state
  • pay sales tax (in states where this is applicable) depending on your sales volumes

Your accountant should from the start ensure that systems are in place to facilitate prompt payment of these taxes therefore avoiding penalization for late payment or non-payment.

While your business may routinely have to deal with being cash-strapped, holding off your obligation to pay some of these taxes is ill-advised considering the backlash that ensues when government agencies act to counter taxpayer delinquency.

10. Accurate bank account reconciliation 

Your bank account must be reconciled at least monthly upon receiving your bank statement. Reconciliation involves mathematically comparing your checkbook’s balance to your bank balance.

Ensure that your checkbook and bank balances are reconciled monthly

Ensure that your checkbook and bank balances are reconciled monthly

A difference in these two balances may result when checks you’ve written are yet to be cleared at the bank. In this case the checkbook balance will be lower than the bank balance since the bank is yet to make payments from the checks.

In reconciling therefore, you will need to subtract the outstanding checks from your bank balance. If the two balances are now corresponding, you will have successfully reconciled your account.

Have your accountant explain this to you; you can save money by doing it personally.

11. Adopting a cost-effective employee benefits policy  

Seek professional accounting advice with regards to employees and payroll issues

Seek professional accounting advice with regards to employees and payroll issues

As your business hires more employees you will need to figure out the following:

  • The number of hours they will work
  • The holidays they are entitled to
  • The vacation policy you will adopt
  • The types of policies you will provide in case you choose to cover employee medical costs or medical insurance
  • The type of sick leave policy you’ll offer

These are certainly very weighty considerations and you need solid advice to make proper decisions. Your accountant and lawyer should get you started on the right track.

In conclusion:

Adopting effective accounting practices is guaranteed to buoy your business’ chances of becoming successful.

Considering the various financial requirements and engagements you must enter with the state and federal government, suppliers, clients and your employees, having a competent accountant by your side is imperative.

Do you have an accountant?

If so, have the services you have received proven to be beneficial for your business?

 

Top entrepreneurs have what it takes to steer their businesses through tough times...GRIT

Top entrepreneurs have what it takes to steer their businesses through tough times…GRIT

When times get tough large businesses typically make it through and even achieve growth by leveraging their superior capacity to secure capital, bargain better terms, and pursue a greater scope of investment options. Needless to say, few succumb to the effects of financial doldrums because they already have hefty cash reserves, financial markets access, and enough foresight to make sufficient prior arrangements.

A small business on the other hand has to do all it can to avoid going down during a financial slump. Ill-advised knee-jerk reactions to such a scenario may include the prompt laying off of some employees or shutting down of some branches.

More prudent small business owners will however be more intuitive in their responses. They’ll want to know what measures can be implemented to keep the business afloat until profitable winds start blowing again.

By adopting a survival mentality there is a good chance that your business will remain intact through crisis times. You will also find it easier to pick up and continue when the economy rebounds.

This is unlike a business that opted for rash responses, such as the ones above, which are really last resort measures. Such a business will no doubt lose momentum seeing as time, money and other resources will have to be expended in hiring new employees, securing premises, winning back lost clients, etc.

What therefore are some of the strategies you can embrace to cope with crisis times?

1. Reinventing your business

After all, necessity is the mother of invention...

After all, necessity is the mother of invention…

When times are good many small business owners direct all their focus on making the most of the currently available opportunities. This is all good but it’s done at the expense of diversifying the scope of focus.

For such a business, a slump in demand and sales has an almost crippling effect on operations and the owner may be at a loss about how to proceed.

How about reinventing the business?

Start by analyzing your strengths and weaknesses and then think about another sector of market where you can be a fit. You then need to answer the following questions:

  • Consider your current products/services; does demand still exist or have customers preferences changed?
  • What are the new trends in your industry; have you kept up?
  • What steps can you take to become relevant again?
  • Do you need to develop new products/services?
  • What is required?
  • Do you know what customers need and how much they are willing to pay?
  • What new products/services can you develop?
  • How will you best reach the new clients?
  • Do some of your old clients fit in your new target market? Can you use them to get more customers?
  • Will these products/services earn you maximum profit?

Revamping your business and getting back on track may take some time.

Take heart though.

The course of action you opt for will most likely be quite familiar to you (thanks to your experience so far) such that making inroads won’t be too difficult.

2. Create other revenue streams

Can you think of other ways to earn money in addition to your core business activity?

Can you think of other ways to earn money in addition to your core business activity?

You must start thinking about how else you can earn new and more revenue in addition to what you are doing currently. This is about finding out what else you can do with the current resources at your disposal.

If, for instance, you own a barber shop and business is slow because three new barber shops have opened up on your street, why not think about offering other men’s grooming services. Many men are now warming up to manicures and pedicures. How about making your shop a one-stop grooming shop by partnering with personal beauty pros?

3. Seek out your former customers

Pick up the phone and call past prospects - perhaps a deal can be struck

Pick up the phone and call past prospects – perhaps a deal can be struck

You never know; what harm can there be in finding out?

Who says a former customer can’t be convinced to start buying again?

Perhaps he or she is disappointed with a current supplier’s quality.

Are there customers who left because their priorities changed? Might they have changed again? Why not find out if their current preferences are within your scope? Perhaps they can even refer new clients your way.

Maintaining a professional relationship does have its perks. From now on you need to implement a healthy customer relationship management strategy.

4. Find former prospects and other people on your contact list

Find out if your contact lists can yield new leads

Find out if your contact lists can yield new leads

When times were good and demand was booming you probably had several cases where potential business deals fell through for one reason or another.

Perhaps some projects you were eyeing didn’t materialize because the prospects had to put them on ice at the last minute.

Now is the time to get out your contact list and try getting in touch with such prospects to find out if such opportunities still exist.

5. Make strategic alliances

Create mutually-benefiting relationships with other businesses; seek and return favors

Create mutually-benefiting relationships with other businesses; seek and return favors

It is worth exploring the industry to find businesses that you can work together with for strategic benefits. (Read this article to find out how this can be done successfully).

Alliances can expand your scope of exploitable opportunities meaning that you’ll still be in work even when your core area’s prospects become lean. Sooner or later you’ll be the one extending the favor.

Also, having a strategic partner will help to propel your market penetration efforts considering that you are most likely facing off against bigger competitors.

6. Explore the online marketplace

Aggressively sell your products/services online

Aggressively sell your products/services online

Many offline businesses owners may be surprised to find out that there are lots more potential customers online.

Don’t be ignorant; simply find out if this is the case and how you can exploit the potential.

Perhaps you already sell online but you are experiencing declining sales. Now is the time to find out if your previously successful strategy has been too limited in scope and if there are new channels to discover.

Find out which aspects of your e-commerce site must be improved. Perhaps your marketing strategy is inefficient. How can this be revamped?

7. Make the most of free publicity

If your business has interesting things to offer people will talk about it

If your business has interesting things to offer people will talk about it

Whenever you get the chance to spread the word about your business don’t hesitate to do so. Word-of-mouth is highly effective and absolutely free – find out ways to always be on people’s lips.

8. Start doing more on social media

Use social media to optimally market your business

Use social media to optimally market your business

Simply having a social media presence is not enough – you must get active in these channels.

Start interacting better with your target audience. Take time to post comments regularly. Ensure that clients’ questions and comments are responded to promptly.

Engage your audience by discussing matters related to your products/services and the industry at large.

Don’t forget to promote your product/service on social media.

9. Make your business mobile-friendly

Your business should move with the times - embrace the mobile platform

Your business should move with the times – embrace the mobile platform

An increasing number of people (read your target audience) are becoming accessible via tablet and smartphone for a greater part of the day.

As a matter of fact, web access via mobile devices topped the number of desktop and notebook users for the first time ever in October 2016.

Is your business mobile-friendly yet? It needs to be.

10. Review your business budget

Reviewing your budget downwards will be absolutely vital

Reviewing your budget downwards will be absolutely vital

This is very applicable for small businesses that have different departments for handling various operations.

Require your managers and supervisors to list suggestions about how expenditure can be reduced in their respective departments. To motivate them you can pose this as a challenge. You can, for example, promise a handsome reward for the departmental head whose cost-cutting initiatives resulted in the greatest percentage reduction in allocated budget.

You should also consider the operating expenses you can influence directly and immediately. Is it possible to opt for a cheaper package for your telephone and software requirements? Have you been taking advantage of attractive discounts and deals typically offered by service providers?

How about the lease terms for your premises or equipment? Are you being overcharged considering current market rates? Are there cheaper options?

11. Find new ideas for profitability

Now, more than ever, is the time to summon your firm's creative minds

Now, more than ever, is the time to summon your firm’s creative minds

This should also be done in collaboration with the staff. Now is the time to really brainstorm for viable ideas that can actually be implemented in the short-term to alleviate the crisis. Winning ideas should be well rewarded.

12. Rethink your positioning

Giving your business a unique market proposition is a sure way to draw more clients

Giving your business a unique market proposition is a sure way to draw more clients

Think about how you can uniquely present your business to the target audience.

What are some of the qualities you think that only your business can offer customers?

Re-position accordingly and let your customers and prospects know about the extra value they’ll get by doing business with you.

13. Make your turnover rate faster

Find out why your stocks are taking too long to sell and then make amends immediately

Find out why your stocks are taking too long to sell and then make amends immediately

Review your business operations to find out what practices are encouraging slow turnover.

Is it that your inventory lies idle for lengthy stretches? Find out if you can purchase less stock instead of tying down too much money at the expense of your profits.

Is it that many of your customers are simply taking too long to pay up? Perhaps offering attractive discounts for prompt payment will help.

Perhaps some of your products are taking too long to sell. Think about reducing package quantities, or end production altogether.

14. Negotiate better terms with your vendors

Convince your suppliers to extend your payment periods

Convince your suppliers to extend your payment periods

To secure better cash flow for your business engage your vendors and convince them to give you more time to settle your invoices. Now use the cash to keep operations flowing.

15. Revise your payroll cycle

Paying your staff less often will enhance the firm's cash flow

Paying your staff less often will enhance the firm’s cash flow

This will generally work in the same way as no.14 above.

Perhaps you currently pay your workers weekly – change this to biweekly. In case you currently pay them bimonthly, change the payroll cycle to monthly.

You will not only have better cash flow but it’s possible that current payroll processing costs will be significantly reduced, more so if you have a large workforce.

16. Go green and minimize wastage

Insisting on energy-saving initiatives will result in considerable power bill savings

Insisting on energy-saving initiatives will result in considerable power bill savings

Take all the necessary measures to ensure that energy costs are trimmed. Basically, adopt energy-efficient practices at your workplace.

Ensure that all lights are switched off when they are not required. All office equipment must also be unplugged at the end of the day.

According to the ENERGY STAR program 40% of electricity consumption by home electronics happens when they have been turned off but not unplugged. The potential savings that you can make by reducing standby power are evidently quite significant.

The same measures should be taken for everything else including time. Enact a strict policy against lateness and inability to meet deadlines.

17. Cut down on travel expenses

Video-conferencing is so much more cost-effective as compared to traveling

Video-conferencing is so much more cost-effective as compared to traveling

By taking advantage of technology you can significantly trim your travel budget. Have you considered video conferencing?

Again, do you really have to fly first-class? How bad can business class be?

18. Consider making changes to your workforce’s employee status

Hiring freelancers and independent contractors will significantly lower your wage bill

Hiring freelancers and independent contractors will significantly lower your wage bill

If you have hired your team on full-time basis you may want to consider making them independent contractors.

Assuming you have been honest with the team about the current situation they will most likely appreciate that they’ll still have jobs.

Their new status means the business will no longer have to pay payroll taxes and/or health insurance benefits, all translating into money saved.

 

Knowing how to stay afloat during hard economic times is crucial in determining whether your business will survive or go under. Has your business had to ensure such times? What was the crisis like and how did you pull through?

Cash is truly king!

Cash is truly king!

To grow and make a success of your small business you must embrace prudent cash flow management. The old business adage “cash is king” has very practical implications for business owners.

Indeed, while long-term business failure results from an inability to make profits, short-term business failure happens when a startup or small business doesn’t have enough cash to pay its bills. A whopping 82% of startups and small businesses fail for this reason.

The basics of prudent cash flow management are rather obvious. Money inflow must exceed money outflow. On the other hand, imprudent cash flow management practices like overstocking, offering lengthy payment terms, overspending and overtrading clearly put your business in jeopardy.

Money inflow must be prompt and timely to facilitate new stock acquisition and payment of suppliers. When cash is easily accessible you can considerably tilt buying and negotiating terms in your favor; this will no doubt help to boost profitability in the long-term.

Good cash flow management will also enable you to better anticipate shortfalls in money inflow thus allowing you to initiate timely contingency measures e.g. securing favorable credit terms and negotiating better payment terms.

What therefore are some of the prudent cash flow management practices that you as a small business owner should implement?

1. Reviewing your cashflow systems

Regularly review your cashflow systems to ensure that the business is not losing money

Regularly review your cashflow systems to ensure that the business is not losing money

Begin by going through your cashflow system in order to identify possible loopholes through which the business may be losing money. Accordingly, put in place measures that will ensure customers are always invoiced for products/services sold and promptly so. Now your system should at a glance show what is owed to you by clients and what you owe your suppliers.

You should also be able to quickly ascertain that you are only paying for supplies received; failure to do this may result in some of your suppliers routinely overcharging you and/or billing you for supplies not received.

It is also worth working out a payment structure that will see you make payments to different suppliers on different dates over a suitable time period instead of paying all of them at once.

Basically, it’s all about making the most of each dollar in your possession, for as long as you can, before it has to be spent.

2. Creating sales projections

Accurately estimating sales volumes and inventory requirements enhances cashflow management

Accurately estimating sales volumes and inventory requirements enhances cashflow management

Making sales forecasts and monitoring daily sales will help you to almost accurately estimate your inventory requirements. You will thus be able to make well-informed purchases and thereby avert the possibility of overstocking inventory for which you will incur storage and maintenance costs.

Additionally, referring to past quarterly sales and future estimates will help you to sensibly budget and plan for inventory purchases.

3. Insisting on advance payments for large orders

Insist on receiving a deposit when the order is substantially large

Insist on receiving a deposit when the order is substantially large

Upon receiving a large order or an order for a custom-made i.e. bespoke item it is prudent to insist on an advance payment that is equal to or more than half the total price of the order.

A distinct characteristic of bespoke products is that they have a limited sales value, typically to the person making the order. In the event that the product is no longer considered as valuable to the client as before, you become subject to the risk of receiving a lesser payment than was initially agreed upon.

Insisting on an advance payment will therefore go a long way in helping to reduce your financial loss should things go awry.

When you are the one making orders, however, try and avoid paying deposits. This especially applies when you are dealing with suppliers well known to you. Simply ensure that your credit history and relationship with a supplier remains positive over the long-term and this will spare you the need to make deposits. This cash can serve better purposes elsewhere.

4. Designing beneficial terms of payments for large orders

For significant orders you may need to come up with mutually beneficial terms

For significant orders you may need to come up with mutually beneficial terms

Sometimes it may be impossible to demand for upfront payments e.g. if the client firm has limited financial muscle or has a policy against making initial deposits for orders. A proactive business owner will in such a case come up with a negotiable payment plan based on tangible benchmarks.

Not only should such a plan be agreeable to both parties, the sum of payments made should ideally suffice and preferably exceed the costs incurred in delivering the order.

For example, given an order to screen-print 1000 t-shirts, the printer may require the client to make a 15% payment after the t-shirts have been purchased, another 35% after the screen has been designed and inks purchased, and 40% of the total agreed amount be paid in four installments as batches of 250 t-shirts each are delivered. Only after all the 1000 t-shirts have been delivered and inspected for quality will the remaining 10% be paid.

5. Offering discounts to encourage quick payment

Make your terms as attractive as possible to encourage prompt payments

Make your terms as attractive as possible to encourage prompt payments

To accelerate cash inflows it might be a good thing to offer early payment discounts to clients who will remit payments well before normal payment term periods elapse.

Typically, invoices are meant to be settled 30 days after receipt, but if payment is made within the first 10 days a 2% discount is given.

Knowing your clients payment habits and your business’ requirements you can make a decision to make this discount rate more attractive for clients who are habitually late.

Such an approach won’t work across the board though. It might work when you are trying to secure more business from a promising startup but you certainly mustn’t apply it for a big client who gives you big business every month but always pays up after 40 days.

6. Enforcing credit terms

Don't hesitate to enforce your terms when payments are not forthcoming

Don’t hesitate to enforce your terms when payments are not forthcoming

Your cashflow will suffer when you extend credit to slow-paying customers. Having identified such clients you need to negotiate new terms that will compel them to settle their accounts quicker.

New clients must know that your business is very particular about prompt payments. Prior to doing business with new clients it is prudent to check their credit reports.

7. Harnessing cashflow management technology

With the help of accounting tools like QuickBooks and Pulse you will have an easier time figuring out your cash inflows and outflows, keeping track of due receivables and payables, and so on.

8. Making the means to get paid more convenient

PayPal greatly conveniences buying and selling

PayPal greatly conveniences buying and selling

As a small business owner you need to make it easy for your clients to make payments.

You can, for example, invest in technology from Tradeshift or Basware to allow your clients to pay invoices via the Cloud. This will not only hasten cash inflows but will also help to avoid the errors and delays characteristic of the paper invoice trail.

Yet another option courtesy of Zapper Scan-to-Pay is to issue clients with invoices that feature QR codes. Using a smartphone a client simply needs to scan the code, confirm the amount, and make payment, all within a couple of seconds.

Other payment options you can avail for your clients are PayPal, Eftpos and credit cards.

9. Ditch pitching in favor of attracting new customers gradually

Gradual nurturing of business relationships is a much better way of finding new clients

Gradual nurturing of business relationships is a much better way of finding new clients

Sourcing for new business opportunities via pitching has been shown to be counterproductive seeing as time and resources are expended on an exercise that may not yield any business.

Today, many small business owners are attracting new clients by gradually growing relationships with them. Beginning with informal interactions and conversations, such a relationship grows from strength to strength as required. With several such relationships it is almost certain that new business will continually become available moving forward.

I sometimes think that this approach is akin to organic SEO where visitors tend to prefer/trust naturally-ranked (gradual relationships) websites more as compared to paid results (pitches).  

10. Opening a business credit card

It's prudent to have separate credit cards for personal and business use

It’s prudent to have separate credit cards for personal and business use

Keeping personal funds and business funds separate is a no-brainer; avoid commingling like the plague.

With a business credit card you will easily be able to keep your business and personal credit separate, build the business’ credit, and avoid a scenario where qualification for business credit will need backing from your personal credit.

Keeping these lines of credit distinctly separate is one of the basics you must comply with if you have your sights set on more investment and business growth.

11. Offering fixed rate payment packages to your clients

Offering your service as a periodic package will guarantee regular cashflow

Offering your service as a periodic package will guarantee regular cashflow

Periodic payment packages are quite ideal for purposes of ensuring that good cashflow is sustained. This approach can work really well for businesses that have traditionally used the hourly rate as the basis for payment e.g. freelance writer services.

Nevertheless, with the hourly rate there is really no way of estimating what your income will be month to month.

However, developing retainer packages based on a fixed number of hours per month, and having clients pay up in advance, is an effective way to take total control of your finances.

Getting payments in advance means that you can account for your spending and business growth using actual figures rather than estimated ones that may eventually not tally considering that some of the arrears may never be settled.

12. Maintaining and repairing rather than replacing capital equipment

Regular equipment maintenance is crucial for prolonged service life

Regular equipment maintenance is crucial for prolonged service life

Your business will enjoy better cashflow if crucial equipment is well maintained and expertly repaired when damage occurs instead of being replaced immediately.

As a business owner you should ensure that equipment undergoes regular maintenance in order to detect and/or forestall possible damage and to restore efficiency.

In case some parts need to be replaced opt to source for these from third-party suppliers rather than the original manufacturers because the latter option is certain to be way more expensive. Also, find reputable technicians to handle complex repair/maintenance tasks instead of reverting to the manufacturer.

13. Going for used equipment instead of new equipment

Used equipment is cheaper to buy and typically offers satisfactory service

Used equipment is cheaper to buy and typically offers satisfactory service

You should strongly consider scouring the marketplace in search of well-maintained used equipment when it becomes necessary to purchase additional or replacement machinery.

Every now and then you will come across ads and auctions notices giving sale details of some equipment you may require. Buying such equipment may see you spend just 50% of a new machine’s price; the used machine’s capability will nevertheless be equal or just slightly less than what you would get from a new machine.

Leasing equipment can also be considered when your business’ cash flow is faltering. Expect to spend more in the long-term though thanks to interest payment.

14. Selling off obsolete/excess equipment or inventory

Retaining idle/obsolete machinery can be quite expensive

Retaining idle/obsolete machinery can be quite expensive

Having idle equipment at the workplace translates into wasted space and tying up of capital that can be devoted to other more productive causes.

Excess inventory is always at the risk of becoming worthless or obsolete especially where customers preferences change rapidly and new materials are rapidly adopted.

Inventory that you are unlikely going to use in the forthcoming 12 months may be worth selling off especially if retaining it will be substantially expensive and expected proceeds from the sale minimal.

15. Adopting subscription sales

Magazine subscriptions are paid for upfront; this is greatly convenient for the service providers' cashflow

Magazine subscriptions are paid for upfront; this is greatly convenient for the service providers’ cashflow

Subscription programs are best created for businesses whose products are repeatedly repurchased and consumed multiple times a year e.g. magazines and landscaping services.

You might want to think of this approach as a means to boost cashflow considering that customers will be required to prepay for the products and delivery.

This arrangement will allow you to secure future sales and cover the expenses involved.