3 Ways to Beat the Small Business Income Crunch

What do 90% of business failures have got in common?

Lack of cash.

Cash will be king. According to Dun and Bradstreet, 90% of business failures happen because of poor cash flow. In today’s sensitive economy, maintaining a strong positive income for your small business is more important than ever before.

Cash Flow Basics for Small Business
Properly, duh, right? Any high school economics student can tell you positive income is important to a small business. But knowing about cash flow and keeping an optimistic cash flow for your business are two different things. So what do you need to consider with regards to your business’ cash flow? Three elements affect cash flow:

– Accounts Receivable (cash flowing into your business)
— Accounts Payable (cash flowing out of your business)
– Overhead Expenses (a subset of accounts payable)

In this article I give you three ways to raise the cash flow into your business.

3 Ways to Increase Cash Flow into Your Business
In case you accounts receivable records look good, your company cash flow should be good, right? Wrong. A positive accounts receivable column only helps your business if you can convert your receivables to cash. Your company accounts receivable is a listing of bad debts to your company. But being due and having cash in hand are usually two different things. So how do you turn accounts receivable into cash faster for your small business?

1 . Bill Quickly and Accurately
Another “Duh! inch suggestion, but you might be surprised at how many small business owners are guilty of ignoring regular and prompt billing, viewing it as another paperwork hassle that will goes on the back burner. If your small business does not bill promptly, start now. Assign an employee to handle this task if necessary. When focusing on long-term projects, arrange to costs monthly for work-in-progress and ask for a deposit before you start the project. Also, be very careful and detailed in your billing. Nothing strains a good method of trading like billing errors. Review your bills for errors and omissions before sending them out.

2 . Prevent Slow or No-Pay Clients
You could be amazed at the kinds of clients who are slow to pay, or totally overdue. According to Dun and Bradstreet, the particular worst slow-pay offenders are big businesses, those with 500 employees or more. On average, these businesses take 62. 7 days to pay up, more than 4 weeks past normal 30-day terms. Here’s the other shocker: the most common no-pay offenders are usually clients who owe $500 or less. Apparently, these clients believe that this amount of cash is insignificant, and don’t feel guilty about not paying up.

Before you take on a new client or extend credit to a client, do your homework. You can do a credit check upon all new clients using an outside agency, or request credit references and do your own checking. Another option is to call other businesses that do business with your client to learn whether the client pays on time. If the potential client turns out to be the slow/no pay kind, don’t take them on. In lean economic times it may seem crazy not to accept all the business you can get, but clients who don’t pay up can seriously and negatively affect your cash flow. Not only will you wait around endlessly to get paid for goods and services currently delivered, but you will also spend a lot of internal resources tracking delinquent balances and chasing your cash. The best policy is: “Just say no! ”

3. Plan for Fast Cash
You can find two ways to get your clients to pay up sooner. First, you can negotiate brief payment terms when you contract with a client. These days, many small businesses are usually asking for and getting “net 15? conditions.
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See which if your clients could be open to these terms. Second, if you’re not comfortable asking for “net 15? terms, you can offer clients a discount for early payment. Offer a 1 to 2 percent discount for paying inside 10 days. While you’ll be losing a little cash to the discount, you’re overall cash balance will be a lot much healthier.

These three simple strategies for income management can be the difference between your small business operating in the black or becoming one of the business in the 90% failing bracket.


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