When it comes to cash flow, it can be difficult to find enough cash for growth initiatives after routine operating costs are paid. Failing to manage cash flow or to accurately forecast expenditures can keep your business from planning ahead, and without a blueprint for growth, that business might be headed for collapse.
What are the best ways to stabilize expenditures in order to have capital available for growth initiatives in the coming year?
1. Pay Close Attention to Where (and When) Money Is Going Out
Managing accounts payable is particularly challenging if you hope to store up cash for other purposes. In a Forbes article, financing expert David Sederholt suggests staggering payment dates through a three-tier disbursement system.
- Tier 1: These are bills you must pay (such as taxes, payroll, rent) or your business will suffer.
- Tier 2: Bills for utilities and insurance"often have a reasonable grace period." These bills are important to pay, but you may be able to speak to the companies to ask for an extension or pay a small fee for an extended deadline.
- Tier 3: Your vendors, wholesalers and suppliers are often open to flexible payment opportunities, so long as you can all agree on a regular payment system.
Staggered payments are most effective if you adhere to the schedules you set up. An electronic calendar, app, or online bill payment arrangement can help you manage this schedule and keep your payments timely.
2. Take a Proactive Approach to Monthly Expenses
Where can you stabilize or streamline costs in your daily business operations? Look closely at recurring expenses. That might include everything from Web hosting and cell phone plans to ongoing consultant charges. Even a small cut in those bills may save significant amounts of money over time.
3. Clarify and Enforce Customer Payment Policies
You can't stockpile cash if your customers aren't paying their bills. Your invoices should have concise and easy-to-understand payment terms and conditions — including interest terms for late payments and the costs of recovering debts. A more positive approach also works. "Why not offer clients a discount if they pay within a certain period?" asks Sebastian Bos at Business 2 Community. If a price increase is imminent, Bos adds, "offer your lower price to long-term customers for an extended period of time."
4. Explore Options to Store Cash
When it comes to building a cash reserve, small business owners have numerous options, including borrowing money, reaching into savings or retirement accounts, taking out a home equity loan or leasing (instead of buying) equipment. The most opportune time to act on these options is when you don't absolutely need to. That's when you are best able to "shop for the best source, with the best terms, and you can negotiate from a position of strength," explains business consultant Hal Shelton.
Balancing daily expenses with a strategy for growth isn't easy, but it should be at the top of every business owner's list of priorities.
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