It’s very easy, when you’re running a business, to fall into the trap of spending more than you’re earning.
The little costs, like software packages, trips to visit clients or attend networking events, small gifts for your customers, as well as the overheads of running your business such as internet connection and heating for your office, soon mount up – and you can quickly find you’re running out of cash.
But what do you do if you find yourself in this situation?
Here are five solutions that could help…
1. Make more sales if you can
The easiest ways to have more cash to spend are to cut your costs and boost your income.
Looking at the second of these first, could you make more sales? Are there existing customers who would buy more services from you? Could you open your business to a new market without spending a lot on advertising, by making use of free social media marketing tools such as Twitter and Facebook?
2. Encourage customers to pay faster
Do you have customers who exceed your payment terms? Could you encourage them to pay faster, perhaps by chasing your unpaid invoices more regularly using an automatic invoice reminder tool?
A time when you’re short of cash isn’t a good time to offer discounts, but perhaps you should also consider offering a special deal on other services to all prompt payers, to increase your sales revenue and encourage prompt payment both at once?
And don’t forget to actually invoice your customers for the work you do, otherwise they can’t pay you! Set aside some time each week or each month to do this.
3. Consider invoice financing
If you are finding that your customers are taking too long to pay you, why not look at invoice financing. This is where companies will pay you upfront a portion of the money that your customers owe you, and collect the money from your customers themselves?
This will help ensure that money comes to you more quickly – but, unlike when you collect the cash yourself, you don’t get to keep all of it, so it’s not a good option if you need every penny you can find.
4. Cut your costs where you can
The other easy way to save cash is to cut your costs. For example, could you save money by establishing contact with your clients on Skype and calling them through that service, rather than using a conventional land-line? Review your bank statements once a month and see what costs you could reduce or cut altogether.
Beware of compromising on quality and tarnishing your brand, though. Skype calls are often poor for sound quality if you ring someone who isn’t on Skype. And, to use another example, if you’re given a business card printed on flimsy paper and cut carelessly on a home guillotine, what opinion does that give you about the business whose owner is giving you the card? Is that the impression you want to create of your business?
5. Don’t let it happen again!
Being short of cash is very worrying. Protect yourself by drawing up a simple cash flow forecast so that you know when you can expect cash to come in and when it’ll go back out again.
And don’t forget the taxman when you’re counting your costs. By using a tool like FreeAgent’s tax timeline you’ll be able to identify what taxes you can expect to pay and when they are due.
If you’re worried that you might run out of cash, organise additional funding like a bank overdraft or investment finance before things get too bad. Small business guru Steve Parks very wisely said that banks are not there to lend you an umbrella when it’s raining!
Today’s Micro Action
If you have a cash flow issue, how could you use any of these techniques to help bolster your financial situation?
And if your bank balance is firmly in the black, take some time today to figure out a contingency plan to have to hand in case the need arises.