Your startup will fail if you don’t know how to build your cash flow.
That’s a fact.
The first few years of your business operation are the most volatile and you could fail in the first two years. That’s true for two-thirds of new businesses, according to the US Small Business Administration (SBA).
Only 50% of those that survived their first two years in business, move forward to five years in operation. It seems that there is a small margin for survival of new businesses.
It is important to understand what could be the factor(s) affecting business survival?
Definitely, your business survival has nothing to do with luck and has everything to do with cash flow. When you run out of cash, you run out of business.
"Poor cash flow is the biggest killer of start-ups. A recent study showed that as many as 82 percent of start-ups fail due to poor cash flow management." ~Richard Branson
The only way to keep going is by creating positive cash flow.
1. Use cash flow budget
It‘s important to keep track of your cash flow or run out of cash, if you don’t. The recommended approach is to plan ahead and create a cash flow budget that will help you better manage your expenses during tight times.
To create your cash flow budget, you will have to understand your cash inflow and outflow during a period of time. This is easier if you have your cash flow statement ready on hand because you can anticipate the peak and lean periods for sales.
Your cash flow statement gives you accurate information you will need to draft your budget ahead of time. It helps that you know when you have money to spend and when you don’t. You can reduce if not totally avoid late payments or any other penalties on your accounts payable. But more importantly, you will know exactly how you are supposed to spend during a specific period.
2. Be on top of invoicing
Don’t ignore this part of your business process. Always send invoices on time or even ahead of time. For online retail, you definitely have to send invoices ahead of time before you ship the products. But for other business models that require you to complete the specified service or deliver the products first, make sure you send the invoice as soon as you accomplish the required work.
Better yet, request for an initial deposit before starting the work.
Make time when you create your invoice. The invoice matters. It should be easy to read and the key sections should pop such as the amount due, due date, payment details, and payment methods.
In this age of technology, it makes sense to email the invoice rather than send in by mail. Always make certain that you are sending the invoice to the right person and the correct email address. If it you can, follow up with a call a little later after you click send to confirm that your invoice was received.
3. Speed-up payments
Keep up with the evolving technology and explore payment solutions that will speed up payment processes for your clients.
There is a growing shift to go mobile. The graph below shows 80% five-year CAGR forecast of the US mobile in-store payment volume.
The bottom line is to make it easier for your customers to pay you that will get you paid quicker.
Exploring the mobile payment apps could prove to be a smart move for your business considering the explosion in mobile use since the introduction of smart phones. This means,
Completely eliminating lag time when you have to bill clients later after you perform the service or deliver the product. With mobile apps, they can pay you on the spot upon completing the service or upon delivery of the product.
Reducing the waiting time at your brick-and-mortar shop for customers in line when you can get your salespeople to approach them, take their orders, and allow them to pay on the spot using mobile payment app.
Dealing with customers with no cash. Instead of them writing checks that takes time for you to encash, your cashless customers can simply pay through the mobile apps, especially if you are at events.
There are a number of payment apps that you can dig. You can start with our top two recommendations:
I. Intuit GoPayment
If you are using QuickBooks, you can try Intuit GoPayment, which is designed to work perfectly with QuickBooks as well as Intuit point-of-sale products that will make it easier for you to generate your reports and financial records.
The best part is that it automatically syncs all your transactions that helps you better manage your bookkeeping easier and faster, probably for a fraction of time you spend when you do it manually.
You will have to attach a card reader that will be used to swipe or scan cards. As soon as the card has been swiped or scanned, payment processing is completed instantly. You can send the receipt to your customers either by text or by email.
II. Paypal Here
Paypal is familiar to most and a trusted brand. Generally, it gives a secure feeling to your customers. Paypal Here makes it easier to accept payments on the go. It accepts credit and debit cards and allows you to create online invoice. Customers can even transfer funds directly from their bank account.
Once the transaction is complete, the funds are deposited to your account immediately.
4. Offer bundle products or services
When you offer bundle products or services, you are actually increasing your price point for a minimum cost. The perceived value that it offers to customers makes the selling point. Say for example, offering a certain guarantee such as discounted maintenance fee for a bundled price gives the perception of value to your customers.
While the discount actually costs you a little, a higher price point still brings in additional cash to your business, which makes it worth exploring.
5. Create higher price points
If you have a low profit margin for your key product or service, you can create what is called the back-end products or services where you hit for a higher price points.
It’s fascinating how successful internet marketers make a significant impact on boosting their sales growth and profit. It seems that they have mastered the art of front-end sales and back-end sales. First, let us define terms for you--
Front-end sales is your first product that usually offers a lower price and with a lower profit margin. Some marketing campaigns even go as far as breakeven price. Say for example, an introductory sale price.
Back-end sales are products or services you create that earns you high profits. This is usually designed to enhance the front-end sales product or service that your customers initially bought from you.
One of the most successful campaigns launched online is the 99 cent coupon code that allows you to purchase a domain name for 99 cents. What most customers don’t notice is that the renewal for the domain name purchased using the coupon code was higher as compared to the renewal price if the product was purchased at a regular price. The long term return of investment using this back-end sales method is simply massive.
6. Strengthen programs for repeat business
If your customers are not coming back for repeat business, it is something that should concern you. For small businesses, acquiring new customers can be costly that makes it cost-effective to retain old customers for repeat business.
You should consider launching frequent-customer programs that increases customer loyalty for repeat business such as VIP offers.
Pre-selling guarantees your sales and you get the cash sooner than you have to spend to invest on your inventory.
Encourage your customers to pay sooner. This will reduce your losses or wastes especially if you are looking into launching a new product with uncertainty on how the market will accept it. You can try to pre-sell to also get the feel of the market demand and forecast your supply.
There is another smart use for pre-selling. You can pre-sell items that you will offer at a discount in the near future or those soon to be out-of-season items that customers can purchase in advance for a cheaper price.
8. Keep a cash cushion
It’s important that you are prepared for tight times.
Cash cushion simply means adding another cash layer that you can pull out in case of emergencies. Getting a credit card that offers rewards points will help you in case you run out of cash during lean seasons.
9. Sell outdated assets
Keep track of your assets and know when their value is depreciating.
Consider going through your assets and identify the outdated items or even items that are not much of use to you and sell it for quick cash. Sell it before it loses any value.
10. Get partial payments
If you bag big orders or contracts that are for long-term, you might want to consider asking for partial payments or deposit before you begin the work or deliver the product.
Upfront deposits help you get started with your operations that allows you to fund the needed materials or safeguard the payment for your subcontractors. This is especially helpful for service-oriented businesses. You may request for a 50% down-payment to start the job and the remainder upon completion.
We help you plan, forecast and analyze your financial data
so you can get on top of your finances today to grow your small business big tomorrow.
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