You managed to pay all your staff, except, of course, yourself. There are debit orders looming and you are watching your bank account like a hawk, hoping against hope that even one customer will pay you on time so that the boat stays afloat.
The life of an entrepreneur … so glamorous and with so many perks of working for yourself – except that is, managing your cashflow.
Even the most profitable of small businesses can sink if you don’t proactively start managing your cashflow, and stop chasing profits.
As an expert on money matters, Mornè Janse van Rensburg, Head: Card Acquiring Sales and Service for Nedbank Retail Banking, gives you tips on how to get on top of cashflow if you have a small business.
1. Determine the break-even point
Start thinking about what you owe suppliers and what customers owe you, on a monthly basis, and understand at what point you would reach break-even.
You can use that as your benchmark to determine when you will start making a profit and if there is a shortfall. You should always try to have some cash reserves on hand or make an arrangement with your financial institution for a cash advance with reasonable repayment terms.
2. Reward customers for paying faster
Consider charging interest on invoices to customers that have a payment cycle of 30 days or longer, and reward customers who pay within 30 days by offering a discount on future services.
Ensure that your customers understand and that it is clearly stated on your contracts and invoices that you will be charging interest for payments over 30 days so that there are no nasty surprises when it comes to invoicing time.
The reverse is also true. Most small companies ironically tend to pay their invoices immediately.
“If cashflow is an issue, consider waiting to pay suppliers a little later but within their payment terms.”
3. Use technology to your advantage
Ask your financial institution what technology they have on offer to help you with back-office reconciliation, reporting and automation so that the system can work for you, while you are busy doing what you do best – which we guess is not handling administrative issues in the case of most small businesses. Also, make it as easy as possible for your customers to pay you so that you take their pain out of payment – online is the way to go.
4. Stay on top of invoicing
Don’t let your customers have to nag you for an invoice. Staying on top of your invoicing, and invoicing quickly, is absolutely critical to cashflow management. The sooner you invoice, the sooner you will get paid.
Find out the specific person to whom the invoice needs to be sent, so you don’t get lost in the bureaucratic works of your customer. Send your invoice by email to speed the process up.
While managing administrative issues may be the last thing you want to do after a 16-hour day, cashflow administration is the difference between your boat staying afloat or drifting out to sea. Reign it in and reap the rewards.
Source: Entrepreneur Magazine