A significant number of small businesses close within a couple of years. Yet, while that can sound ominous to new small business owners, if you’re aware of why they close, you can decrease your chances of following the same fate.
A staggering 82% of small businesses close due to a single reason: poor cash flow. If you make this aspect of your operations more robust, then you’ll be greatly increasing your chances of making it through the first few difficult years.
Easier said than done? Yep. But there are things you can do to improve your cash flow, as we’ll see below.
Encourage Early Payments
It’s one thing to have to close your business because of money problems. It’s even more frustrating when you have to close even though you had money that would eventually come in. Offering a discount for clients who make prompt payments is a great way to give your cash flow a boost. Your clients will save money, and you’ll get the money owed in the bank — it’s a situation that benefits everyone. The discount doesn’t have to be massive; even 3 – 5% can be effective.
Avoid Big-Ticket Purchases Where Possible
All businesses need equipment in order to work efficiently. In some industries, that equipment can be extremely expensive, which can have a knock-on effect on the businesses’ cash flow. It’s not hard to see how investing in a piece of heavy machinery would make a small business more financially vulnerable.
Before buying equipment, it’s worth checking whether you really need to make the purchase in the first place. There will likely be an option to lease/rent the equipment, which will give you access to the tools you need in a much more budget-friendly way.
Get Professional Help
Businesses often run into cash flow difficulties for a very simple reason: they’re managing the financial aspect of their operations in-house. In many cases, it’s the business owner who’s in charge of managing the finances. That can be fine if they have experience and expertise in this area, but if they don’t, then things can quickly become complicated. Handing the responsibility over to an experienced accountant will ensure that your business has effective cash management procedures in place, which can go a long way toward keeping your cash flow in tip-top condition. Plus, this will also free up your time, ensuring you can spend more time on value-adding tasks that push your business forward.
Analyze Your Clients
You’d like to think that all of your clients will be fair and honest in their dealings with you. However, that’s not always the case. Some will be slow in paying, or, in some cases, avoid paying altogether. It’s just a reality of the business world. One way to avoid this problem is to perform a credit check on your clients, especially ones who are making a big order and who aren’t paying upfront. It can take a bit of work, but it might just save you a lot of problems further down the line.
