Guest Blogger : Michael
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Cash flow issues sink small businesses every single day. If you’re not on top of your cash flow, future financial problems are inevitable. Learning about common cash flow issues and good financial management practices will ensure you don’t fall victim to the mistakes made by many other small business owners. Below, we share some great tips to help you establish good cash flow practices from day one!
Protect Your Personal Assets
Before concerning yourself with your business finances, make sure your personal financial health is in good standing. Many first-time entrepreneurs don’t think about the fact that their personal assets are at risk in the case of litigation or overdue business debts. Shield yourself from financial hardship by establishing your business as a separate legal entity.
One of the easiest ways to do this is to form an LLC. Besides shielding your personal assets, forming an LLC will also offer tax advantages that can further support your financial health. You can form an LLC online through formation services like ZenBusiness. Just make sure you review the rules and regulations around forming an LLC in your specific state before moving forward!
Speed Up Accounts Receivable
The faster you can get money coming in, the better. Collecting money owed to you by customers and clients will ensure you have the cash you need to pay your bills on time. Thankfully, there are many things you can do to speed up your accounts receivable. Consider asking clients for a deposit before starting work on a project. Invoice your clients as soon as the work is done. And make it as easy as possible for people to send you money by setting up digital payments. If your clients tend to wait a long time before paying their invoices, consider establishing late penalties or early payment discounts to incentivize them to pay faster.
Cut Your Ongoing Expenses
Many small business owners don’t start thinking about making expense cuts until they’re facing tough times. But to keep your cash flow strong, try to be mindful of your spending at all times. Always be on the lookout for ways to reduce your ongoing expenses, whether this means downgrading to a less expensive email service provider or reducing the size of your office and hiring remote employees. When cutting costs, don’t sacrifice the quality of your products or your customer service. As MoneyHighStreet explains, striving for high levels of customer satisfaction and encouraging repeat business is much more affordable than continuously looking for new customers.
Stabilize Cash Flow with a Line of Credit
Cash flow naturally fluctuates throughout the year. As consumer shopping behavior shifts with the seasons, it can be tough to keep up with your spending needs. For example, if you need to purchase extra inventory ahead of the holidays, you may be short on working capital for a while. This is where a line of credit can help you out. A line of credit will allow you to access cash quickly, so you can pay bills or purchase inventory when your cash flow slows down. Unlike traditional loans that require a long and drawn-out application process, lines of credit make money available whenever you need it.
Lines of credit are ideal for established businesses but may not be available for startups. According to ZDNet, most lenders will require that your business has been operating for at least 6 months and earns an annual income of $25,000 or more. You may have to rely on a personal line of credit until your business is established enough to qualify for its own.
Maintaining healthy cash flow is key to the long-term success of your business. Make sure you always have the working capital you need to pay the bills and your business is sure to thrive! Taking steps to cut your costs, speed up your accounts receivable, and stabilize your cash flow will go a long way towards securing your financial future.