Are you stressed out about cash flow? Does the thought of not meeting payroll keep you up at night? We get it. You are not alone. According to the 2021 State of Small Business Cashflow Survey by QuickBooks, sixty percent of small businesses struggle with cash flow. Part of this is undoubtedly due to the “COVID-19 Cash Crunch” and pandemic economics. But even in good times managing your cash flow can be challenging.
Pandemic uncertainty certainly does not help. Managing cash can seem overwhelming, especially when things are seemingly out of your control. It is possible, though, and it does not have to be overly complicated.
Here are six things you can change right now to improve your cash flow. Do these and your business (and your wallet) will thank you.
Stop Working for Free
We’ve all been there. A well-meaning colleague makes an introduction, and you spend an hour handing out free advice. Or a great client asks you for a small favor, and you trade 15 emails with “one of their good friends.” Maybe you thought a quick tip pointing someone in the right direction would actually end there… You know what (and probably who) I’m talking about. While helping someone out is a nice idea, and wholeheartedly a good thing to do, you worked hard to learn your craft. The hours you spent honing your skills should count for something. Set some boundaries and stick to them. Offer a “free” 30-minute consultation or agree to a cup of coffee and set a hard stop for the end of the meeting. Then don’t be afraid to bill for your services. You are worth it.
On that note, you also need to –
Send Out Invoices
Invoice your customers regularly and monitor your receivables. Make it a habit; set a cadence and stick to it. We have seen instances where prospective clients completed billable work but didn’t send an invoice. In fact, this person performed many hours of billable work – and felt so busy that there were thousands of dollars just waiting to be billed. That really is working for free!
We have helped clients significantly improve their cash flow by helping them create invoice templates that make it easy to bill weekly.
Pro Tip: If you have a set/flat fee, get a credit card or bank account for ACH on file, and send a sales receipt instead of an invoice.
Another idea for an invoice cadence is to spread out your monthly billing. At HireEffect, we invoice some clients on the 1st of the month, and others on the 15th which significantly improves our cash flow and helps us manage that cash more effectively.
Speaking of billing, why not –
Get Paid on Retainer
Think about your work as a commissioned piece of art. After all, you are an artist in your chosen craft.
This is common in many industries.
When you hire an attorney, they ask for some money upfront, and when you have exhausted the retainer, they ask for more. If you hire a contractor, they typically ask for partial payment, even it’s for materials, and then they bill you for time afterward.
Another way to keep the cash flowing is to –
Ask for Partial Payments
Sometimes, it’s easier (and more comfortable) to get paid in regular monthly installments instead of a giant lump sum. This is especially nice with long-term projects. Spreading out those payments means you have a predictable flow of money coming in. This may help you with cash flow management. As nice as it is to have a huge influx of cash at the end of a project, it is a bit riskier.
Your customers will appreciate the flexibility, too. It puts less strain on their budget and creates fewer problems with their cash flow.
And don’t forget that you can also request to make partial payments. Monitoring your payables is as important as monitoring your receivables.
About that flexibility, did you know you can –
Leverage Credit Cards
We already talked about getting a credit card (or bank account) on file. This enables you to collect your receivables almost instantaneously.
You can also use a credit card to extend the time in which you need to pay for your business purchases. As long as you pay the balance in full, it’s like free money for 30 days. And you have control over when the money leaves your bank account. Plus, if you choose your small business credit card wisely, you can build up miles or points to use in the future.
Pro Tip: Using a small business credit card and paying off the balance helps you build credit for your business. Many entrepreneurs forget that not only do you want great personal credit, your business needs to establish good credit, too.
One more thing to consider is to –
Increase Your Rates
Take a look at what the profit margin standards are in your industry. Are you close? If the answer is no, it’s time to raise your prices. Sound scary? We understand. Those what-ifs can drive you crazy. Be confident in your product or service. When you know you are the best choice out there, it’s likely that your loyal customers know that too. And, frankly, thanks to COVID, raising your prices now is even more justifiable.
For longer-term solutions remember to look at cost-savings measures, too. You can negotiate your interest rates or for better terms, cut excess spend, and evaluate the effectiveness of the things you are paying for.
And start to save up some cash reserves. There may not be a way to control the economy, but you can control how much you may have to borrow because of it.
Are you still having trouble with cash flow?
Since 2007, HireEffect™ has been helping organizations across multiple industries improve their bottom line. It’s like having a business partner in your back pocket. We are here whenever you need us. Contact us today!