Cash is king. If you don’t manage your money well, you could find yourself out of business quickly even if you have plenty of sales. I’ve written 7 of my best money management tips that every business owner should use to run a successful business.
- Use a Budget: Every Fall you should develop your new budget and sales goals for your business. You need to make sure you understand your monthly burn rate or how much money it costs to operate your business monthly, including payroll. It will help you have a clear understanding of your business expenses including office supplies, inventory, labor, shipping, accounting, legal, marketing, health insurance, business development and your quarterly business taxes. You also need to understand how much profit is in every sale. It’s important to review your budget before making any major purchases for your business.
- Create Money Rules: How you pay bills in your business should be established by you and not when you receive an invoice. I pay vendor invoice twice a month on the 15th and the 30th, no one gets to demand a payment. I manage my cash flow a lot better, knowing when I will make vendor payments. When I have bills on auto pay, I also select the date of the payment with the vendors when possible to manage cash flow, as well.
- Create an Emergency Savings Account: Just like you should have emergency savings for your household, you need one for your business too, especially if you are a professional service business. My suggestion is that you establish an emergency savings account for your business as a money market account so that you can have liquid cash in case you need to move around money to bills when your customers pay late. Try to keep at least two payroll cycles worth of money in this account. Now, you should have a line of credit too, but you need cash on hand as well.
- Accept All Forms of Payment: Your accounts receivable turnover ratio, is how long it takes you to receive money after you issue an invoice. One of the fastest ways to get your money is to accept all forms of payment. Wire transfers, Checks, Credit cards, Apple pay, Samsung pay, Vemo etc. Cash is the least useful form of payment. It’s costs time and money to accept cash. It’s make your business vulnerable to theft or human error, and it takes time to reconcile cash daily and make bank deposits.
- Review Financial Statements Monthly: By the 15th of the month, you should know how well your business did the prior month. You should have your bookkeeper or accountant develop you Profit and Loss Statement, Balance Sheet and Cash Flow statement. Don’t just call an accountant at tax time, utilize that person as a business advisor. And if you do not know how to read financial statements, get your accountant to teach you. Don’t let your fear of math be the reason why you don’t know what happening financially in your business.
- Invest in Your Professional Development: You must grow yourself to grow your business. For the first 10 years I was in business I took a class for business course. I took business plan courses, the SBA’s E200 program, the 8(a) Academy, Leadership Inc., and I enrolled in college courses at Dartmouth College, University of Virginia, and Harvard University. My point is, most of us know how to build our widget, but running a business is an entirely different skillset that most be acquired. Make sure you are reading books about how to be a better leader in your business, and that your step back in a classroom to grow your business skills.
- Manage Your Time Well: As the business owner, your time is the most valuable thing you have to give anyone. Make sure that you spend it on you most high-valued activities. I focus on 5 key tasks a day, and make my list of priorities the day before. I do not believe that business owners should every spend time on $15-$20/per hour work, especially if your time is billable at $250, $375 or $1,000 an hour. Have policies and procedures in place that document how things run in your business so that you can delegate tasks and have materials to use to train your employees to your expectations. The more time you spend onboarding your staff the better they will perform.
I hope you will use these tips to get on top of your cash flow in your small business. Remember, profit is how we keep score in business. It’s not about what you make, it’s about what you keep. If you want to learn more about how to fix your business cash flow, grab a copy of my new book, Fix Your Business – it could change your business and your life.