Cash is the life-blood of your business. No matter how well your business appears to be doing on paper, if the amount coming in doesn't match what's going out, it simply won't survive.
Many business owners at one time will sense a problem with their cash-flow. The usual response is to spend time chasing up slow-paying customers, or do a big sales push to bulk up the bank account. While this may help cash-flow in the short term, there could be some underlying problems that are causing your business to bleed money, without you realising.
Here are some of the areas you could be losing money, and what you can do to prevent it.
1. Not tracking expenses
Many small businesses fail to properly track their expenses. If you don't know what you're spending and more importantly, why you're spending it, it can be hard to keep expenses under control.
The fix: Record every dollar spent, keep receipts and invoices and track your outgoings properly. Use the last 6 months of expenses to help you establish a budget with specific categories for the types of expenses your business has. Once you have a realistic picture of what your outgoings are, you will be better able to trim the fat, if possible.
2. Debt, bank fees and late payment fees
Do you know what your credit cards, loans or lines of credit are costing your business? Interest on loans and even late payment fees from your vendors can be a slow and steady leak in your bank account.
The fix: Do an audit of your current debt and see whether it's possible to consolidate your loans to reduce payments or switch to a bank with lower fees. If you are using a business credit card, try to pay it off each month to avoid interest charges. Do your best to pay your bills on time and avoid those pesky late fees.
3. Your customer invoices are going past 90 days
Without regular and timely customer payments, your business will begin to operate on borrowed time (or money). The shocking reality is, a very small percentage of invoices that age beyond 90 days are ever paid. You could be letting income slip through your fingers simply by not staying on top of your debtors.
The fix: Invoice promptly and set up an automatic payment reminder, if possible. Most accounting software allows you to add a 'pay now' feature to your digital invoices, giving your customer the option to pay the invoice quickly and conveniently. Get into the habit of sending out monthly statements. Many businesses only pay upon receipt of a statement. Stay on top of your debtors and make regular contact with your overdue accounts once they extend beyond the payment terms.
4. Variable expenses are too high
Office parties, staff lunches, cleaning supplies, office equipment, business meetings - these are occasional expenses that are tricky to track or predict but are necessary to running your business. Left unchecked, however, they could add up to thousands of dollars every year.
The fix: Be aware of your variables and try to limit how much you spend on them each month. Take a look at your business practices and identify ways you could consolidate some of these expenses - eg. buy cleaning supplies in bulk once a quarter, or find wholesalers for office supplies rather than buying retail.
If you find yourself feeling overwhelmed or unsure how to fix your cash-flow problem, reach out to Valley Bookkeeping Solutions. We know the right questions to ask and are trained to see the cracks in your financials. Partnering with a Bookkeeper that cares about you and your business, could put you on the path to having your best year yet!
Contact us today.