In every work that you do, it’s important to ensure that your efforts aren’t in vain simply due to poor management. This is something that ought to be considered in managing cash flow for any small business in order to soar beyond your potential. Managing a business can be stressful especially when your accounting skills are not reliable, and this is why it is important for you to observe the following tips on how to manage the cash flow for your start-up and even take it to greater heights.
1. Define your business break-even point
With every start-up, there’ll come a time when you will start to realize some profit even if it takes a while to actually happen. Keep in mind that incoming profits will not affect your cash negatively, but it is rather important to have a clear knowledge on when your business will start to become profitable. This way, you will be able to manage the cash that’s already available, and it’ll even make it easier to set a target for projecting future cash flow. This is simply like setting a goal and with every business there is need to have ambition that can be met by proper organization.
2. Always deposit in interest-earning accounts
For every small business, money matters shouldn’t be taken lightly. This is why it is vital to make every cent count especially when it comes to your money reserve. Banking in an interest-earning account will not only grow your reserve, but it will also help in managing your future income. In most cases, the interest rates generated on these accounts are relatively lower than the ones on savings accounts and certificates of deposit or money market accounts. Due to the fact that it is always important to have liquid cash, you ought to keep only the money that you won't require in an interest-earning account.
3. Require deposits on custom or large orders
Whenever you receive a distinctive or special order that’s probably larger than most ordinary orders, it is paramount to always request for security deposit which should be a minimum fee equal to 50% of the overall price of the order. By doing so, you will safely eliminate the likelihood of receiving a reduced payment on delivery time, which is a threat to the business itself. For sure you may wonder how is this so? This is because in the event of an unfortunate circumstance, you will automatically be subject to financial loss which should be avoided at all times.
4. Get rid of or sell outdated inventory or equipment
Having futile and outdated equipment can be wasteful because it will not only take up unnecessary space, but also tie up your capital through a series of costly repairs. It’s necessary to keep in mind that equipment that have been used over a long period of time tend to have a book value equivalent to their salvage value or lower. This only means a sale might eventually lead to a taxable advantage for your firm. Moreover, having excess equipment can quickly become useless especially when the customer requirements change over time. Therefore, it is only wise to consider selling any equipment that is unlikely to be in use over the next 12 months not unless the maintenance costs are low.
5. Offer discounts on quick payments
Coming up with a discount program will encourage most customers to complete their payments as early as possible. For normal cases, one is allowed a 30-day period for payment after the getting an invoice and a 2% price cut if reimbursed within the initial 10 days. In any case, you can choose to offer more, less or even no discount at all based on your business requirements and your previous customer paying habits.
It is crucial for start-up companies to plan effectively by having the right approach on how to manage and nurture the business. Therefore, having these tips on cash management will set a foundation for the development of your business today.