How to Avoid Cash Flow Issues for Your Business

December 17, 2013 | Valerie Wong

Every business owner has probably encountered a cash flow problem at some time, and sometimes one of them just can't figure a way out of it. Nothing is more frustrating than hitting a valley after a big peak, being unable to purchase more inventories or pay employees, or not having the money to grow a newly successful business.

Seasonal Businesses Suffer

Lots of seasonal businesses suffer in the winter months and do well in the summer months. Businesses like amusement parks, landscaping companies, and construction companies suffer in the winter months. Better than most, these kinds of businesses know that cash flow can be crucial to keeping a business alive. Sadly, a lot of entrepreneurs don't plan ahead for the leaner times, and they learn hard lessons when their businesses hit serious seasonal snags.

Even businesses that make hundreds of thousands of dollars in yearly revenue can suffer from cash flow problems. Here are some tips for seasonal business owners to dodge cash flow problems.

#1 Get on Top of Your Receivables

You cannot rely on your accounts receivables as actual revenue unless customers can fork over the money and pay you. If you don't do that, you won't have the cash to meet your payroll demands and other obligations for your business. You need to set up an efficient process to collect the invoices. Here are some suggestions to set up a more efficient collection process.

  • Invoice Right Away – If you don't get right on top of issuing those invoices that you need to process payment, your customers will take their sweet time in making payment. Make quick invoicing a high priority.
  • Reward Prompt Payment – Give discounts to customers who pay right away.
  • Offer Down Payments – This option will help ensure that at least some of your invoices will get paid. A lot of small business owners make it a requirement.
  • Factor – If receivables are a serious cash flow problem, think about selling them off to allow yourself a little breathing room. There are a number of other lending companies that are currently involved in this kind of financing.

#2 Arrange for Your Vendors to Give You Better Terms Whenever Possible

The cost of running a business is the other end of cash flow. Discuss more favorable options with vendors whenever you can. Ensure that you have ample time to finish the jobs you have for your clients, send them invoices, and get paid prior to fulfilling obligations to your vendors.

#3 Avoid Paying Your Bills Until They Are Due

It's not good to be delinquent on your bills, because it can lead to late fees and damage credit scores. However, you shouldn't do the inverse, either. You shouldn't pay your bills ahead of time, unless you have some financial reason for doing so, like a cash discount, were you to do so. Get into the habit of making Internet-based payments and send the funds right at the nick of time to make sure that they stay current. This will let you have more cash on hand for longer spans of time. Technology makes everything easier and quicker.

#4 Get a Line of Credit

Getting a small business credit line is a boon to a small business that runs into cash flow issues occasionally. Credit unions, small banks, and big banks are becoming more willing to set up credit lines, especially when they aren't generating as much money from setting up mortgages. It is not unreasonable to think that you could set up lines of credit with interest rates that are reasonable. Competition in this area has sent the interest rates down considerably.

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