With the new financial year craziness wearing off and we settle into our new normal, now is a good time to rethink your strategies. For this year in particular, it is essential that you do this. It is essential that small businesses are on the ball in thinking creatively. Here are some simple tips to Read More…
Cash flow: Four business strategies to ensure consistency
Chris Strode, Founder, Invoice2go
Mon 9 March 2020 - 8:33 amFeatured | Finance
Steady cash flow lies at the heart of all successful businesses, regardless of either their size or industry. Achieving and maintaining it is imperative for long term success and stability – however, it’s not an easy feat to secure. The reality is that many small businesses experience seasonal ebbs and flows in their cash flow throughout the year.
Financial uncertainty makes it difficult to operate in the short term, pursue longer term goals and can even negatively impact a small business’ well-being. So, it should come as no surprise that small business owners can benefit immensely from understanding their business’ finances and the external factors that can affect it.
If your business struggles to survive slow months, or you’re unsure what to do with the extra cash when that large invoice is finally paid, here are four ways to master your cash flow.
Understand the seasonal trends
First, it’s necessary to study and understand how your business ebbs and flows over the course of a year. If you own an ice cream business, for example, looking at your earnings during the summer months can paint a grossly exaggerated picture of your annual income. So, if possible, analyse your sales data over the past 12 or 24 months. This can help guide you when it comes to understanding when you do and don’t generate income, as well as planning for things like major expenses, hiring staff, engaging contractors or buying more equipment or stock.
If you’re new to your industry, or aren’t sure how your cash flow trends stack up with others in the industry, don’t be afraid to ask other small business owners for their advice and expertise. By identifying your busiest periods and storing money away for when you’re quiet, you can maximise your peak-season profits and minimise the impact of the down season. Remember fixed costs, too, which are unavoidable but easy to plan for. At the end of this process, the more money that you can put away during your busiest times, the easier it is to navigate the seasonalnature of your business.
Build an emergency fund
Setting aside an emergency cash reserve of, for example, three to six months worth of expenses will help to ensure you still have enough capital to cover fixed costs such as rent and utilities during slow periods. Dedicating a small percentage of your business’ revenue during busy periods is a great place to start. While it can take a while to build up, you’ll be grateful that you have the cash to see you through when business is slow or you suddenly incur a large, unexpected expense. Getting into good habits from the get-go will put you in good stead when it comes to long-term money management, giving you the peace of mind that your business is financially stable all year-round.
Request a deposit
There’s nothing worse than securing a big project for a client or customer, starting to invest large amounts of your time and money into it, and then running out of cash before you’re in a position to submit an invoice. At that point, it can be too late to ask the customer for money, so you’re often left scrambling to source the remaining cash required to complete the job before the final invoice is ready to submit. By requesting an upfront deposit, you can feel confident knowing that you can invest both your time and money, and will have the capital to see a job through from start to finish. A deposit also helps to formalise the commitment, eliminating any fear of a client backing out of the project.
Provide a convenient service all the way through to payment
Payment is usually the final stage in your engagement with a client, so is often the overall impression a customer leaves with. Frustratingly, no matter how smooth the project was, a difficult payment process at the final hurdle could tarnish their view of your business. To ensure you’re offering a convenient service that will leave your customers with nothing but glowing reviews, ensure the payment process is as seamless and professional as the rest of your work. Offering a wide range of convenient payment options via mobile invoicing apps such as Invoice2go means you’re able to accept payment however they prefer to pay. This not only streamlines the payment process, but helps you get paid faster. And what’s more, providing this type of convenient service will give your customers one more reason to return to recommend or return to your business – allowing you to maintain that all important cash flow.
So don’t worry whether you consider yourself financially savvy or not; by implementing a few simple measures now could ensure that a consistent and steady cash flow runs through your business all year round. And then, once your finances are flowing, you can focus on securing larger projects and growing your business.
Chris Strode is the founder of Invoice2go, the mobile invoicing app that gives small businesses and contractors control over their time and business. As a small business owner from a family of tradespeople, Chris created Invoice2go out of frustration with the lack of simple invoicing options available.