Cash flow issues can be stressful as a small business owner. Sometimes you can send invoices to your heart's content but that doesn't always mean that you'll get paid right away. This combined with never ending expenses can often cause a cash flow issue where your business account might be left a bit emptier than you'd like.
If this has happened to you before, you know it's incredibly stressful so below are a few ways to avoid that cash flow crunch and instead have a flourishing business that doesn't cause financial stress.
Send Invoices On the Same Day Each Month
Whether you send invoices once a month or twice a month, it's important that your clients know when to expect them. You can even let them know upfront when you sign a contract with them that you'll be sending invoices on the last day of the month or on the 1st and 15th. That way, they always know they're coming and it won't be a surprise on a random day of the month.
Institute a Late Fee
A quick way to ensure no one is late with a payment is to implement a late fee on your invoices. You can write into the notes section of your invoice or into the contract that if the payment isn't made within 10 business days, they owe you a fee on top of your service fee. This usually makes clients pay promptly.
Have a Large Emergency Fund
When you have cashflow issues in your business, it usually means that you're struggling to organize your variable income. This is very common with small business owners, and one way to alleviate the strain is to have a large emergency fund.
When you have a large emergency fund or a large savings fund for your business, you can assign yourself a salary. For example, you can decide to pay yourself $6,000 every month on the first of the month. That way, if you make below $6,000 the month before, you can dip into savings to make sure the payment is the correct amount, and any month you make over $6,000 you can put the excess in the account to cover the leaner months. This is only really possible if you get a month or two ahead which is challenging but not impossible as a small business owner.
In order to get a month or two ahead with your business cash flow, it's important to take a long, hard look at your business expenses. It's very easy to justify a payment because it's a tax write off, so sometimes small business owners buy more equipment than they need or nicer versions of computers or cameras than is actually required simply because it's a write off.
So, be honest with yourself. Is there something you can live without? Are all your business subscriptions really necessary? Is there anything you can cut out that will help you to get ahead financially?
If you take all of these questions into account and develop good habits in terms of building your savings and watching your spending, you will be well on your way to financial success in your business, and cash flow issues will be a thing of the past.
How to Fix Cash Flow Issues as a Small Business Owner was originally posted on Due Payments Blog by Catherine Alford.