Small business owners don’t have the luxury of waiting for customers to pay their bills after they’ve delivered a service or finished a product. Often, they need to borrow money from a bank or a venture capitalist to keep the company going. And they often borrow too much cash, which can result in financial difficulties down the line.
The stark reality is that most small businesses fail within the first few years of operation. In fact, as many as 50% of new companies close their doors before making it to their third anniversary.
One of the main reasons for this is that many small businesses struggle with cash flow. They wait too long before asking customers for payment and end up having trouble paying their own suppliers.
Not everyone is skilled with finances and can make consistently good decisions regarding how business funds are used. At the same time, not all clients are able or willing to pay what they owe on time meaning small businesses bear the brunt of this delay in financial transactions.
Cash flow management is one of the most important aspects of any business. It’s important to make sure that you are prepared for unexpected expenses and meet your obligations when they come up.
Thankfully, there are many tools available for small businesses to help them with cash flow management. When it comes to bookkeeping software, there are two main types available: basic and advanced. Essential software is not too expensive, but it lacks features that can come in handy for many businesses. Advanced software is more costly but has features to manage payroll, taxes, inventory, and more.
As we move to a more digital world, analog ways of booking can only help so far. Filing receipts and invoices are becoming increasingly outdated but can still be useful for many businesses especially those who deal primarily in cash, as are physical contracts etc. Not to mention time-consuming when looking for information.
In the last decade, small businesses have been at a disadvantage regarding accounting and marketing needs. For example, small businesses may not have the budget to hire an accountant or a marketing consultant to help with content marketing. In recent years, however, there have been many changes in the market to make life easier for small businesses.
New bookkeeping software has been created for small businesses that make it easier for them to automate their accounting operations and increase their cash flow. Using bookkeeping software will allow a business owner to focus more on growing their business by saving time on things like developing relationships with new clients or finding ways to expand their product lines.
Cloud-based software applications come with a built-in function that allows for repeated reminders to be sent to chase up late or missing payments. By setting payment parameters for clients as a whole or individually, you can improve the speed at which invoices are settled by automating the entire process.
Another change in the market is how contract management software has been updated to be tailored towards specific industries such as construction. Utilizing easy to use contract management software can help you get the contract drawn up and keep on top of plans and payments quicker and easier.
Many small businesses are wary of working with payment platforms due to their cut of payments. But including a broader range of payment options can allow for clients and customers to settle up quickly. For example, PayPal is a widely trusted payment platform. They will enable the option to pay via e-cheque or credit card, meaning the client details are safe and secure. They know the payment will be processed correctly while allowing them to keep a record easily for themselves. While as the vendor, you can expect PayPal to take a small percentage in fees, the benefit can mean you get paid faster and easier.
Offering discounts might seem counterintuitive, especially if you struggle to improve your cash flow as a small business. But even a token gesture of 5% or 10% off the invoice total for payment in a set number of days can result in the invoices being paid faster to take advantage of the discount.
Alternatively, offering bulk upfront discounts for prepayment can give you access to the funds before the work is completed. While this can help in the short term, the long-term implications are that you will still need to complete your end of the deal for the contract term, which can be an issue if you provide a physical product you need to source materials for.