Small Business Briefcase: Go with the Flow - Keeping Cash Ready

GO WITH THE FLOW: KEEPING CASH READY

One key to surviving a crisis is getting ahead of it, and for any size business, ensuring adequate cashflow is an essential element of proper preparation.

Cashflow is at the forefront of every business owner’s and CFO’s mind during the Covid-19 pandemic. Regardless of profits and losses, the timing of revenue and expenses controls the viability of your business. “The faster and better your cashflow process is, the longer you can sustain a crisis,” said Steve Dorrough, a Montgomery CPA. Dorrough is a trusted resource in the River Region for the pragmatic and sound advice he gives his business customers, and he shared these tips for increasing the flow in your revenue pipeline.

Find Ways to Decrease Time in Receiving Your Money: Bigger businesses usually wait until the 60-90- day range to pay their bills. A way to avoid this lag time is to offer a discount for paying in the 30-day range. Make sure your contracts with clients include a specific payment deadline that, if missed, will result in an extra late fee. Whatever you do, make sure you are consistent. If the business is having a hard time paying because of some financial troubles, allow it to pay something, if not the whole amount, until it is back on its feet.

Move Clients to Credit Card Payments: Bounced checks can be expensive, so get a credit card on file. There is usually a credit card fee, and clients would rather pay by check. If you go up on your prices to cover the fee across the board, more people will use the credit card. By charging the card automatically, you control the payment date. Also, if a card is declined, there is no penalty charge unlike a bounced check.

Invoice at the Time of Service: Instead of generating invoices once a month, generate them as soon as each job is complete. Reserve monthly invoices for recurring services. This will ensure your business has money flowing into it constantly instead of waiting for a giant payday in the middle of the month.

Invoice to Net 10 or Net 15: When working with a client for the first time, bill them at Net 10 or Net 15, until you see their payment pattern. Save Net 30 for clients you work with all the time. The pricing for Net 30 needs to cover your carrying cost because you are basically lending them money.

Most importantly, put some money back for a rainy day. “You don’t want to hunt for an umbrella when it’s raining. The cost of umbrellas goes up,” said Dorrough. “When rain is not in the forecast, that’s when you need to buy an umbrella.” Secure a line of credit before you need it for those times when your cashflow may be affected. This will minimize the impact to your business.

RESOURCES AT THE READY
SCORE is a resource partner of the SBA and helps mentor small businesses through online resources and local mentors. Here are several of its key tools and articles you can access online.

Check out this great library of information on cash flow. score.org/accounting-cash-flow-resources

SCORE’s Financial Projections Template tool provides sound direction for startups and new businesses. score.org/resource/financial-projections-template

The 12-month Profit & Loss Template score.org/resource/12-month-profit-and-loss-projection

And take the time to watch this webinar: Understanding Cash Flow - A Critical Component to the Life of Your Business. It was recorded after the COVID-19 pandemic began and features Julie Brander, a small business owner. score.org/event/ understanding-cash-flow-critical-component-life-your-business