Smart business owners can improve their cash flow cycle with a few simple changes to their business practices.
You need funds to start, grow, and expand. The usual sources for small business working capital rapidly disappear in times of economic uncertainty. Banks, venture capitalists, and small business lenders close their proverbial doors to small business owners. Look to your own cash flow for answers.
In times such as these, small business owners, entrepreneurs, and sole proprietors need to look for cash within their business. If you keep your books using software such as QuickBooks, you can’t expect it to make decisions for you. The software is generally very good at keeping records, calculating numbers, and integrating data for reports, but it’s not built to maneuver and change course. In short, it’s up to you to improve your cash flow.
- For example, it is very important that you pay your bills on time. That will tie your vendors to you. However, bills do not have to be paid on the date received. You can manage your payment system so that bills are posted so close to the due date that they are paid on time but not before.
- Another source of indirect funding lies in your Accounts Receivable. It is likely that you provide some discount to the payer if payment is made within a certain time, say 2% discount on bills paid within 10 days. Consider the effect of slowly increasing the discount for payment within a shorter period of time and examine the effects of the change on your collections.
Each of these moves would improve your cash flow and, thereby, create a source of small business working capital that allows you to budget, forecast, and quite possibly survive these difficult times.