One Sherpa

Many small business owners are continually running short of money and instead of looking inside their business to see what might be wrong; they simply borrow to keep things going.

This is obvious lunacy but its amazing how many just borrow and hope that things will turn out better.

Banks are always on the look out to lend you more money because this represents more income for them.

While it is very tempting on occasions to borrow to keep things going, make sure you move beyond just hoping things will get better.

Have you reviewed your business model to make sure it is sound?

Do you know what your business model is and how it could be changed?

Good cash flow is the life blood of any small business.

Without it, business owners struggle constantly to find enough resources to keep the business going while at the same time putting food on their table at home for their family.

So what are seven good tips to help you keep the cash moving in your business?

1. Get a weekly copy of your bank statement – Many business owners do not ever review their bank statement and leave it up to their book keeper to do all this for them. As a result it’s ‘out of sight – out of mind’ when it comes to the awareness of cash and they only look when a crisis occurs.
2. Review your invoicing procedures – If you are not efficient in getting invoices out to customers then you’re unlikely to get money back from them efficiently. You send a message to your customers with your invoicing procedure so if it is haphazard or late your customers are likely to take the same attitude to paying you.
3. Review your terms with your customers – What terms do you sell on? Do your customers adhere to those terms or just pay when they feel like it? When was the last time you checked the actual terms in your business or reviewed them with your customers?
4. Clean out old inventory – Many business owners hate the pain of dealing with old inventory because it usually represents a mistake that was made which can be hard to own up to. As a result the inventory builds up and ties up money in something sitting doing nothing. Have a sale or look for a different channel to sell surplus or excess stock into and you’ll be happier with the money back in your bank.
5. Review your payment procedures – Do you have a disciplined and formal method of paying your suppliers. Is it a matter of paying when you have the money or when suppliers ring up OR are there particular days of the week or times in the month when you make payments? Do you time your payments with receiving money from your customers?
6. Review the terms for your suppliers – When was the last time you negotiated terms with your suppliers? Do the terms with your suppliers match the terms you give your customers. If you buy on 30 days and sell on 60 days then you will always have a cash flow deficit particularly if your business is growing strongly.
7. Don’t focus solely on making a profit – most business owners are completely focused on making a profit until they run out of cash. This means focused on the costing and pricing without considering their working capital and how the money flows in their business. While making a profit is important, having money in the bank is more important because when there is no more money you’re broke!!

What’s your experience with cash flow?

I’d love to hear your feedback or further tips you’ve found useful.