Running a business takes nerves of steel.
You need confidence in your business plan and yourself.
You need to switch your mindset from that of employee to that of business owner.
You require cash reserves, especially in the first few years, so you can weather the ups and downs of your new venture.
What is the long-term SMB survival rate?
Business ownership is not easy. Some people succeed while others fail.
The US Department of Labor tracks the small business survival rate. The stats are hardly encouraging.
- Within 2 years, 20% of new businesses have closed.
- Within 5 years, slightly more than half remain in business.
- After 7 years, the survival rate hovers around 46%.
For many SMB owners, the difference between success and failure comes down to better cash flow management.
Knowing your current cash position, maintaining strong AR policies, and projecting future cash flows help many businesses thrive where others fail.
Try these 4 easy tweaks to improve your business cash flow
If you’re facing business cash flow problems, these 4 tweaks can help ease the pain.
- Know your cash position. As a new business owner, you may have heard this phrase before. However, you may not know what it means. Your cash position simply means knowing how much cash your business has on hand at any given moment. This includes actual cash (money in the bank or investment accounts) and any other liquid assets (like CDs, money market accounts, or other assets that can be quickly turned into cash).
For the small business, your cash position indicates strength or weakness. It determines how long you could stay afloat if no other funds were incoming. It provides a cushion against downtimes. It provides the bedrock for future growth.
- Find your roadblocks. If your cash flow is suffering, find out why. This step requires a long hard look at your business tools and processes. Are you failing to send invoices quickly? If an invoice is late, do you have a follow-up plan? Do you properly vet customers before you agree to work for them? Can your late payers slide by without facing any penalties?
Once you see the roadblocks, work to remove them. Use tools that automate invoicing and follow-up processes. Create written terms and conditions for customers, including late payment terms, so everyone understands expectations. Perform credit checks on customers if it makes sense for your business. There are several low-cost tools you can add to make invoicing run smoother.
- Make cash flow easier. Make it as easy as possible for your customers to pay on time. How? Offer the payment options your customers want. For some small businesses, cash and check sales work fine. However, other businesses quickly discover that their customers want a range of payment options. This may include accepting credit card payments, both in person and online. It could include bank transfers too, especially for B2B businesses. A whole host of credit card payment and ecommerce apps are designed to easily integrate with your QuickBooks accounting software.
- Seek out a smart advisor. When you first start out, your business often requires you to be a jack of all trades. You are the CEO, marketer, producer, accountant, and sales staff rolled into one. As your business grows, so do your responsibilities. Eventually, tracking cash flow may be one of the duties you decide to pass on to someone else.
As solopreneur and entrepreneur ventures increase, accountants and CPAs have embraced their role as business advisors. They no longer serve as mere number-crunchers and form-fillers. Many now work in the cloud with their clients. This allows quick access to real-time data. Accountants who work this way can warn business owners of upcoming cash flow problems, advise SMBs how to improve their cash flow, and counsel clients on the apps and tools that can smooth out cash flow hiccups.
As a business owner, what tips and tricks do you use to improve cash flow? How important has positive cash flow been in the survival of your business?