One of the things business owners have to do is to manage their cash flow. Which means that it is important for you to know what cash flow is and the effects it has on your business. Fundamentally, cash flow represents the movement of money out and into your business. To see the real picture, see the cash flow in the same way you see your bank account. If the money in your bank account is more than you require covering your monthly bills, then your cash flow is positive. However, if the amount of money flowing from your business (expenses) is more than the amount coming into your business (income and revenue), you will have a cash flow problem or negative cash flow.
As a business owner, you should know that the survival of your business will highly depend on the flow of your money in and out of your business. By understanding the flow of money in and out of your business, you will get the power you need to start growing strategically. But after your cash flow has dried up, it can be hard to prevent the fall of your business because cash flow affects every business aspect. The concept of cash flow is complex. By understanding it, you will be able to eliminate the chances of your business failing.
We at Tianlong Services can help you to manage your cash flow better.
Here are the eight tips you need to keep your business money moving.
1. Set clear expectations
Perhaps, you cannot remember the number of times you have been caught in between invoicing and receiving the money.
In your contract, you have to stipulate with the client how often you would like to receive your payment – it could be on a weekly, bi-weekly or monthly. Each time you turn in a new project, you need to determine the payment schedule. You will also have to negotiate on the termination fee if the client cancels your project.
Include stipulation relating to the late payments and their effects on your business. After you have established clear expectations, you will manage to protect your finances and time before you even start working with the new client. That is important whether you are a seasonal business owner or you experience low sale periods from time to time. Even more, it is good to forecast your expenses accurately and budget.
Create a calendar for the operating expenses of your business and add the entries for the recurring payments and the due dates. That way, you will keep a good statement of the expenses and the due dates.
2. Diversify your clients
To get more money and to ensure that the cash flow is consistent, you will have to diversify your clients. That is, you’ll have to gain the skills needed in a specific industry to get clients operating in different industry. That is important because it will protect your business if a client decided to stop working with you.
By relying on two or three significant clients, you will have to start from scratch if a large percentage of your income or revenue disappears. People who have many clients enjoy the peace of mind associated with knowing that their income is well spread throughout the month. In other words, they are always generating new income day after day. As your number of clients increases, you will be able to understand your payment schedules.
To get many clients, you should never stop marketing and promotion. Unless you believe that you cannot accommodate any more clients, the phrase “over marketing” should not exist in the business world. If you do it properly, marketing will get you out of a rut and even help you kick start sales or curb cash shortage in your business. When it comes to eliminating business expenses, marketing is usually the last thing on most people’s mind. If the number of your clients has been stagnating, it is time to come up with new strategies.
3. Manage your budget properly
Self-employment means unpredictability and you should, therefore, know your obligations at any given time and work to remain on top of your bills. For example, IRAS requires you to submit quarterly GST payments, you will have to set aside some cash for the payments. By prioritizing on saving some money for the future, you be ready for emergencies and you will manage to retire eventually.
Tianlong Services Pte Ltd, incorporated in Singapore, provides bookkeeping service, taxation services and other business services to many clients. We will provide you with the tools you will need to create your budget. Some of the tools we use – including QuickBooks – will help you separate your personal expenses from the business expenses so that you can remain on track.
Pay for necessities before you indulge in any purchases that cannot benefit your business or finance your family needs. Start by depositing some money in your investments, savings and emergency funds. It is better you overestimate what you need other than saving nothing at all. Engage the services of a financial advisor so that you can monitor your budget and invest wisely.
4. Get paid faster
You have to ensure that your clients are paying you quickly. Increase the chances of getting prompt payments by invoicing each time you turn in assignments. You can also stipulate on the contract that the client have to make a partial payment upfront so that you start the work.
Regular communication with your clients will also help ensure that your clients are respecting your working relationship and keeping in mind when planning on payments. Some self-employed professionals might choose to offer discounts to the clients who pay within a few days after they have received the invoice. You can use some of the available free invoice generators like QuickBooks to speed up the invoicing process. They will help you present to clients why you are charging them and keep track of the invoicing and payments.
5. Respect your work and time
You might be managing your payments, but that does not mean that clients should delay your payments. After setting up your expectation clearly, creating the contracts with clients, and invoicing the clients, you will be able to protect your work, time and finances. The practices also reinforce your relationships with your clients and increase your professionalism. This step is more important if your business has clients who rely on credit finances or even those who rely on extended payment plans. Your business’s accounts receivable management processes have to be solid. Therefore, time the payment of your expenses with the flow of receivables, offer several payment methods to your customers and invoice quickly. You can also offer bonuses or discounts on earlier payments. Some businesses rely on credit cards, lines of credit and business loans to address their cash flow problems. Debt finances are known to be risky, but it will help you establish better relationships with banks.
6. Come up with a contingency plan and improve your tracking system
You can make contingency plans if your major variables have been changing with time. All you need to do is invest in a quality computer program or application to help monitor the flow of cash in your business. The modern systems are more effective at warning the users before real cash problems arise.
7. Understand your breakeven point
The breakeven point of your business implies the point where the expenses equal the revenues – where the monthly profits and monthly cash flow equal to zero. You can look at the breakeven point in two ways. One of the two ways involves considering the number of sales that you have to break even. Put differently, you will have to know the number of products you have to sell so that you can cover the expenses of running a business for a specific time. The other way involves seeing the breakeven point as a time moment. Put differently, you will have to assess the average number of projects your company completes each month so that you can know the length of time you will need to break even and remain steady. The formula to use is (Breakeven volume) / (Average sales volume per period). For example, if you figured out that you have to sell 50,000 items to reach the break-even point and on average, you sell 2,000 items each month, then you will need around 20 months to break even. After you have reached the breakeven point, you will know that your business is in the right track and you can think of reinvesting your revenues. If you fail to reach it at the speculated time, you will know that something is already wrong and you will have to revisit your drawing board.
8. Use Tianlong services
To keep track of your cash flow and every financial aspect of your business, you will need the services of specialists. Even though you can manage the cash flow of your business as you get the business off the ground, it will not take long before the cash flow management becomes a part-time job. So, after your business is up and running, you will need to hire an accountant or a bookkeeper to monitor the business finances.
By hiring Tianlong Services Pte Ltd, you will be able to use your time to make more money and cover all the costs.
A little organization will help you maintain your business income at a reliable level. The above tips will help you get paid promptly and keep your business thriving. You can also use payments, invoices, and expense tracking to improve the cash flow. Some accounting software programs will help you do that in a better way.